House Financial Services Hearing

Chairman Hill (00:00):

… has a hard stop at 1:00 PM, which we will strictly observe. I'll now recognize myself for four minutes, for an opening statement.

(00:09)
Welcome Chairman Powell, thank you for being with us today. For the last four years, inflation has crushed Americans. Today it takes a $1.21 to purchase what just cost $1.00 in January of 2021, as measured by the Consumer Price Index, the erosion of Americans incomes, and thereby their savings, was caused by combination of irresponsible fiscal policy, supply chain disruptions but also by, in my view, the Federal Reserve fighting the last war. Staying too low, for too long. Chairman Powell, you and I have discussed that previous hearings of the Fed, like many others, assumed that the pre-pandemic era of low inflation and low interest rates would continue. This belief was one of the reasons the Fed changed its monetary policy framework in August 2020, only seven months before inflation began its four-decade steep march upward, in March of 2021.

(01:07)
In hindsight, the adoption of the so-called "flexible average inflation targeting" appears ill-timed and ill-fitted for a post-pandemic world. As the Fed undertakes a review of its monetary policy framework, you must account for the lessons of the last four years, and think about what's ahead over the horizon, not what has been. The Fed has made progress on inflation, but as the last mile seems the hardest. As Bank America economist Stephen Juneau said yesterday, "Inflation is stuck above target with risks to the upside." In August 2022, with inflation raging, you gave a speech that echoed some of your predecessors as chair. You vowed to "keep at it until we're confident the job is done." It's a vow you should fulfill.

(01:53)
With this morning's confirmation that inflation is well above the 2% target at 3%, and making a move upwards, other economic indicators are positive. As you reported yesterday, a low inflation rate, solid GDP growth, and financial conditions continue to support expansion and investment. This is not a time to say that there are no risks, but some perhaps, unseen. However, these risks in comparison to the risks of a resurgence of inflation present are modest. Given the already high prices due to President Biden's inflation, Americans simply cannot afford further price increases at the grocery store and gas pump. Such a resurgence would likely force the Fed to begin another tightening cycle, making mortgages, credit cards, and small business loans unattainable for many.

(02:41)
That's why I urge the Fed to forge ahead with its monetary policy duties until you're confident the mission is complete, and price stability has been restored. The fact is, over the past decade, we've witnessed too many distracting additional mandates diluting the Fed's core mission of price stability. This is the reason we formed the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity that will be led by Chair Frank Lucas. The Task Force's purpose is to ensure that the monetary policy actions of the Fed are put under a magnifying glass and prioritized for this committee, and I look forward to our first hearing of the Task Force.

(03:22)
I now want to turn to some of the other Fed responsibilities, bank regulation and supervision. The Fed was created by Congress to be an independent agency. The intent is to insulate the Federal Reserve's monetary policy from political influence. Unfortunately, in the last two and a half years of the Biden administration, the Fed took on serious liberties with its independence in the areas of supervision. In law, Federal Vice Chair for Supervision is to develop policy recommendations that then have been brought to the Board of Governors for consideration. In my estimation, over the years, you and the board have been too deferential to the Statutory Vice Chairman for Supervision. Vice Chair Barr turned the Basel III end-game rulemaking into a partisan attempt to propose a massive hike on capital on American banks, making them less competitive.

(04:11)
The Fed has a chance right now to get back on the right track and preserve its independence for the long-term benefit of the American people. And with that, I yield back.

(04:22)
Chair recognizes Mr. Lucas, the Chair of the Monetary Policy, Treasury Market Resilience and Economic Prosperity Task Force for one minute. Thank

Mr. Lucas (04:31):

Thank you, Mr. Chairman.

(04:33)
While there are differences of approach in this room, a bipartisan guiding principle is that maximizing economic growth is the path to economic prosperity. It is the single greatest factor in delivering opportunity and improving the quality of life for the folks back home. The actions of the Federal Reserve and the machinery of monetary policy play an important role in economic stability. With the five-year review of the monetary policy framework underway, I hope this will be an opportunity to evaluate the effectiveness of the Fed's toolkit, and its vast influence on the lives of every American. The creation of the new Monetary Policy, Treasury Market Resilience and Economic Prosperity Task Force will afford us the opportunity to dive deeper into this topic.

(05:13)
Chairman Powell, thank you for being here. There are real issues that deserve our attention, and I hope today will be productive. I look forward to hearing your testimony on the state of the economy, where we're at, and where we're headed. Yield back, Mr. Chairman.

Chairman Hill (05:27):

The gentleman yields back. The chair recognizes Mr. Vargas, the Ranking Member of the Monetary policy, Treasury Market Resilience, and Economic Prosperity Task Force for one minute.

Mr. Vargas (05:36):

Thank you very much, Mr. Chairman, and thank you Ranking Member. And thank you, Chairman Powell, both for your years of public service and for appearing before our committee today. As a Ranking Member of the newly formed Monetary Policy, Treasury Market Resilience, and Economic Prosperity Task Force, I look forward to working with Chairman Lucas and the rest of my colleagues to address these important issues.

(05:57)
The research is clear. Independent central banks perform better in carrying out their mandates than politically motivated central banks. The independence of the Federal Reserve is crucial to achievement of this dual mandate goals, to maintain both maximum employment and stable prices. And although this dual mandate has been criticized by some, it continues to serve Americans well. It has not prevented the Fed from making substantial progress on driving down inflation, all the while avoiding a recession, which many saw as inevitable. I look forward to your testimony, Chairman Powell, and I yield back.

Chairman Hill (06:34):

Gentleman yields back. I'd like to turn to the gentleman from Michigan, and yield to him for a point of personal privilege. Mr. Huizenga.

Mr. Huizenga (06:42):

Thank you, Chairman Hill. And as we all know, all good things must come to an end and I want to take a minute to recognize someone who is leaving the committee, but has been an integral part of the oversight work Republicans have done over the last five years. Although Nicholle Vo is all of 29 years old, something that we tease her about on a fairly regular basis, I quickly realized that despite her physical stature, she was a force to be reckoned with. Her dedication to my team, this committee, her colleagues, and this institution are something that we all should aspire to achieve.

(07:23)
Nicholle has effectively served in various roles, from a professional staff member right out of law school, to now Deputy General Counsel in this particular Congress. In her time with the committee, nicholle has worked on or led investigations into Sam Bankman-Fried, the bank collapses of 2023, terrorist financing, culture and corruption at the FDIC, and the SEC's Climate Disclosure Rule, just to name a few. And I've sat through her questioning, and it's fierce, and tenacious, and directed. Myself, my team, and frankly the whole Financial Services Committee team can't thank Nicholle enough for her work, and what she has done on behalf of this organization.

(08:07)
And like all good staffers, she has become a confidant, a sounding board, has the ability to say no. In a very nice way, but in a very tough way, as well. And although Nicholle will be leaving the committee, her contributions will not be forgotten, and are deeply cherished. So thank you, Nicholle. We deeply appreciate all of your work, and I yield back.

Chairman Hill (08:38):

Mr. Chairman, we welcome your testimony. Chairman Powell, you'll be recognized for five minutes to get an oral presentation of your testimony. Without objection, your written statement will be made part of the record. You are now recognized for five minutes.

Chairman Powell (08:51):

Chairman Hill, Ranking Member Waters, and other members of the committee, I appreciate the opportunity to present the Federal Reserve's Semiannual Monetary Policy Report.

(09:03)
The Federal Reserve remains squarely focused on achieving our dual-mandate goals of maximum employment and price stability, for the benefit of the American people. The economy is strong overall, and has made significant progress toward our goals over the past two years. Labor market conditions have cooled from their formerly overheated state, and remain solid. Inflation has moved much closer to our 2% longer-run goal, though it remains somewhat elevated. We are attentive to the risks on both sides of our mandate.

(09:35)
I will review the current economic situation before turning to monetary policy. Recent indicators suggest that economic activity has continued to expand at a solid pace. GDP rose 2.5% Percent in 2000-

Chairman Hill (09:49):

Mr. Chairman, can we ask you to pull your mic a little closer, please? Thank you so much.

Chairman Powell (09:53):

Sure.

(09:54)
Recent indicators suggest that economic activity has continued to expand at a solid pace. GDP rose 2.5% in 2024, bolstered by resilient consumer spending. Investment in equipment and intangibles appears to have declined in the fourth quarter, but was solid for the year overall.

(10:13)
Following weakness in the middle of last year, activity in the housing sector seems to have stabilized.

(10:20)
In the labor market, conditions remain solid, and appear to have stabilized. Payroll job gains averaged 189,000 per month over the past four months. Following earlier increases, the unemployment rate has been steady since the middle of last year, and at 4% in January, remains low. Nominal wage growth has eased over the past year, and the jobs-to-workers gap has narrowed. Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance. The labor market is not a source of significant inflationary pressures. The strong labor market conditions in recent years have helped narrow long-standing disparities in employment and earnings across demographic groups.

(11:05)
Inflation has eased significantly over the past two years, but remains somewhat elevated relative to our 2% longer-run goal. Total PCE prices rose 2.6% over the 12 months ending in December, and excluding the volatile food and energy categories, core PCE prices rose 2.8%.

(11:24)
Longer-term inflation expectations appear to remain well-anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.

(11:37)
Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. Since last September, the FOMC lowered the policy rate by a full percentage point from its peak, after having maintained the target range for the federal funds rate at 5.25 to 5.5% for 14 months. That recalibration of our policy stance was appropriate, in light of progress on inflation and the cooling in the labor market.

(12:05)
Meanwhile, we've continued to reduce our securities holdings. With our policy stance now significantly less restrictive than it had been, and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance. We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly, or too little, could unduly weaken economic activity and employment.

(12:35)
In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the FOMC will assess incoming data, the evolving outlook, and the balance of risks. As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong, and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly, or if inflation were to fall more quickly than anticipated, we can ease policy accordingly. We are attentive to the risks to both sides of our dual mandate, and policy is well positioned to deal with the risks and uncertainties that we face.

(13:20)
This year, we're conducting our second periodic review of our monetary policy strategy tools and communications, the framework used to pursue our congressionally assigned goals. The focus of this review is on the FOMC's statement on longer run goals and monetary policy strategy, which articulates the committee's approach to monetary policy, and on the committee's policy communications tools. The committee's 2% longer run inflation goal will be retained, and will not be a focus of the review. Our review will include outreach and public events involving a wide range of parties, including Fed Listens events around the country, and a research conference in May. We will take on board the lessons of the last five years, and adapt our approach where appropriate, to best serve the American people to whom we are accountable. We intend to wrap up the review by late summer.

(14:11)
Let me conclude by emphasizing that, at the Fed, we'll do everything we can to achieve the dual mandate goals Congress set for monetary policy. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2% goal, and keeping longer term inflation expectations well-anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. Thank you, and I look forward to our questions.

Chairman Hill (14:42):

Thank Mr. Chairman. Chairman yields back. We want to recognize the Ranking Member of the full committee, Mrs. Waters from California, for a four-minute opening statement.

Mrs. Waters (14:51):

Good morning, everyone. Welcome Chair Powell, to… Our country is on the precipice of an economic disaster unlike anything we've seen in recent memory. While Trump promised lower prices for working class families, we're seeing the exact opposite. In fact, grocery prices are rising. According to the Labor Department, eggs are up 40%, more expensive than they were even a year ago. In my home state of California, we've seen eggs as high as $9.00 and more for a dozen. Inflation is rising, and it is up to 3% for the first time since June.And other staples are about to get more expensive, as Trump levies new taxes on steel and aluminum.

(15:42)
America's consumers and businesses are facing uncertainty and chaos. This is all because Trump and his unelected billionaire co-president, Elon Musk, are taking a sledgehammer to our economy and democracy. In recent days, they attempted to illegally kill the Consumer Financial Protection Bureau, the same agency created after the financial crisis of 2008. Since its inception, CFPB has successfully fought on behalf of working class families against the abuse of big banks and predatory lenders, not to mention returned $21 billion back to families who were swindled.

(16:26)
Chair Powell, you explained yesterday that with the CFPB shutdown, there is no agency to supervise big banks to ensure they follow consumer finance law. In the face of these illegal, cruel and relentless attacks, Chair Hill, it is both urgent and critical that you immediately convene a long overdue hearing with CFPB Acting Director Vought, members of Congress, and importantly, the American public deserves answers as to why Musk and his DOGE minions are in possession of sensitive consumer information, and what they are doing with it.

(17:10)
Additionally, Trump is simultaneously threatening import taxes on US companies that will increase the cost of groceries and other basic supplies for all. Trump is freezing funds for housing assistance and community development, and whittling down the federal workforce so that his Billionaire Boys Club can suck any of these workers salaries into their own pockets. This is all part of Trump's Project 25 playbook.

(17:44)
You know what else he's taken from Project 2025, Chair Powell? Their plan to eliminate the Fed. We're watching this play out as Trump doubles down on his efforts to gut the independence of the Fed, as we have seen with demands that you drop rates immediately. In fact, his co-president Musk attacked Fed independence in a tweet earlier this year.

(18:11)
Chair Powell, I know you have been adamant about the independence of the Fed, and have thus far resisted pressure from Trump. But after your decision to eliminate DEI initiatives, following Trump's illegal order, I'm concerned that Trump has more influence over you than you let on. I speak for all of my colleagues on the Democratic side when I say that you must stand firm in defending the Fed's independence. Reject any attempt by Elon Musk and his DOGE minions to gain access to the Fed, its systems and data, and speak forcefully about what's at stake for our economy. The American public must hear from you, our central bank, today.

Chairman Hill (18:57):

Gentlewoman-

Mrs. Waters (18:57):

I yield back.

Chairman Hill (18:58):

The gentlewoman yields back. I yield myself five minutes for questions.

(19:03)
Thank you again, Chairman Powell, for being with us. Let me start with the Fed's bank regulation and supervisory function. As I mentioned in my opening statement, over the past two and a half years, the outgoing Vice Chair for Supervision has pushed new regulations that would move the United States towards a one-size-fits-all approach to prudential regulation that disregards the congressional mandate that's been quite clearly established for regulators to tailor bank regulation based on an institution's size, complexity and risk profile.

(19:34)
Earlier this year the Fed Board announced that Michael Barr would be stepping down from his position as vice-chair on February 28th, 2025 or earlier, should a successor be confirmed. Significantly, the board also announced at that time that it does not intend to take up any major rule makings until a Vice Chair for Supervision successor is confirmed. I've discussed this with you. I've got concerns about that. You're not abdicating your supervisory response while we wait around for a Vice Chair For Supervision. Do you agree that it's the Board of Governors that has the responsibility for bank supervision policy?

Chairman Powell (20:13):

I do, and I would also agree that we need to carry on with our regulatory and supervisory duties. We can't take a holiday, and we will proceed with the things that we should be proceeding with.

Chairman Hill (20:26):

You testified in the Senate yesterday, and I know you enjoyed time with the senators, and you talked a little bit about Basel III end-game, and again in my opening statement I talked about that the intent was to harmonize those rules, true for the largest institutions in the world. But also do that in a way that's capital neutral, and many of us here in Congress on both sides of the aisle felt like Vice Chairman Barr's approach was gold plating already high standards for American banks. You testified yesterday that you think bank capital levels are about right for those large institutions. Would you tell the committee today that it's your intent to re-propose a Basel III end-game approach, just speaking on behalf of the Fed only not the other supervisors. And that it be taken into account the comments, and that it be generally capital neutral?

Chairman Powell (21:17):

We do intend to re-propose Basel III end-game, and we intend to do that just as soon as we can get together with the new leadership at the two other banking agencies. And as I mentioned, I think we can do that pretty promptly, once those people are in place. I look forward to doing that.

(21:33)
My long-held view, as I've said in many of these hearings, is that capital in the banking system for the largest banks is about right, and that would be my starting point on going into these discussions. But I want to defer, I do want to leave it for my upcoming new leadership at those agencies, to have their own views on that.

Chairman Hill (21:53):

I think that's important. I think it needs to be coordinated and harmonized among our supervisory agencies. I do want you to take into account how Basel III end-game proposal interacts with other pending rules, whether they're on liquidity, or the other things like operating risk in the companies. I think that was a lot of the centrality of the comments that we saw, on your Barr proposal.

(22:18)
Turning to monetary policy, looking back at 2020 and 2021, I was looking at all the principal monetary policy rules that you report in your semiannual report. And had you followed any of the monetary policy rules that you track, they would've had you tighten sooner in the cycle, rather than waiting. And I think that could have reflected, maybe not seen us have a 40-year high in inflation. Using the benefit of hindsight, do you think you should have looked at those rules more closely in the open market operations, and tightened sooner?

Chairman Powell (22:58):

I will say, and I've said before, that hindsight suggests that it would have been good if we had tightened earlier. I don't know how much difference that would have made, but I'd be very careful with those rules. Those rules, in the middle of last year, suggested that our policy rate was a couple of hundred basis points too high. So we need to… They're a starting point, not an ending point, is my only [inaudible 00:23:22]-

Chairman Hill (23:21):

Right. But we've had this conversation before, the point is that they do offer a road map, and you do mention them in writing in your monetary policy reports. Except for one time, during the pandemic. And I think, though, that you're adding that to your reference point and your forward guidance, and in your communications, I think would be important. Can you tell us about the review of the inflation targeting, and when do you expect to complete that?

Chairman Powell (23:49):

Expect to complete it by late in the summer, this year. We're just beginning it now, and we're going to look at all the decisions that we made and why we made them back in 2020. We're going to ask ourselves what's changed, we're going to be open to criticism and good ways of thinking about it, and I think we'll make appropriate discrete adjustments.

Chairman Hill (24:09):

I thank you for being with us today, and I turn to the Ranking Member of the full committee Mrs. Waters, for five minutes for your questions.

Mrs. Waters (24:16):

Thank you very much, Mr. Chairman. It is no secret that, President Trump, that he wants to do away with the Federal Reserve altogether. He said he knows interest rates much better than you do. I want you to know that some of us here have been fighting to make sure that everybody understands the importance of the central bank. Every country, dealing with crypto, their central bank is involved. But of course, Trump and the opposite side of the aisle fought us, and that's one of the reasons we were not able to come together with a bipartisan agreement on stable coins. You previously said that you would not resign if Trump asked you to do that. Do you stand by that commitment?

Chairman Powell (25:06):

I have no changes to that.

Mrs. Waters (25:09):

I can't hear you.

Chairman Powell (25:11):

Yes.

Mrs. Waters (25:12):

Thank you. Please let the record record that adequately. I appreciate that, because you have a right to your position not to be interfered with by law, I believe. Or even, Constitution. When Musk comes knocking at the Fed's door, are you going to let him in?

Chairman Powell (25:32):

I don't have anything for you on that.

Mrs. Waters (25:36):

Would you like to tell us today that you won't let DOGE into the Federal Reserve, or have access to the systems and the data?

Chairman Powell (25:45):

So we don't, I don't have any… We've had no contact, and I don't really, I have nothing for you to report today on that.

Mrs. Waters (25:53):

Well, you know what happened to Treasury, and you know what happened over at the CFPB, and the people of this country are being violated. Because all of our privacy is being taken up by Elon Musk and Trump, and we don't know what all they have on us. Our bank accounts, everything in our lives, so I want to protect it in the Fed.

(26:15)
Mr. Powell, the last time you testified before this committee you said, and I quote, "Really successful institutions in the United States generally are those that do a really good job on diversity, and get the best out of people, and attract a broad, diverse range of talents to the table. That is the way we feel about it and at the Fed, and that is what we've been doing and will continue to do." Chair Powell, how will you ensure that the Fed continues to attract the best and most diverse employees?

Chairman Powell (26:53):

You know, institutions like ours, private and public, are in a constant contest to hire the best talent in the country. And we've all learned, I think, and certainly we have, that we will go anywhere to find that talent. And including places that we didn't go 25 years ago. And we'll just continue to do that. We're recruiting, as you know, at many, many, many universities and colleges, including historically Black universities and colleges, and others. And that's what we find, and that's our practice. We think that's the best way to go about it.

Mrs. Waters (27:26):

Thank you very much. And that's what I've always felt about the Fed, no matter what they call it, you only attracted and hired the best qualified people in your operation, no matter what they refer to it as, what they call it, whatever way they define it. Is that right?

Chairman Powell (27:45):

Yes.

Mrs. Waters (27:46):

Thank you very much. Chair Powell, are you willing to provide my staff with an immediate briefing from your agency on the status of your OMWIs and Equal Employment Offices?

Chairman Powell (27:59):

Yes.

Mrs. Waters (28:00):

Thank you. I believe that you know that the OMWIs were created with the Dodd-Frank reforms. It's in law, and as I understand it, any attempt to dismantle OMWIs would have to come before the Congress of the United States of America. Is that your understanding?

Chairman Powell (28:19):

Well, yes. Section 342 of Dodd-Frank, which is the OMWI section, is the law.

Mrs. Waters (28:24):

Thank you. Chair Powell, to what extent have you consulted with other board members in determining how your agency is complying with Section 342 of Dodd-Frank, as well as any other federal anti-discrimination law?

Chairman Powell (28:42):

I think we've consulted with senior staff and board members quite a bit.

Mrs. Waters (28:52):

Chair Powell, days after his inauguration, President Trump issued an executive order on digital assets, which includes a prohibition on central bank digital currencies or CBDCs. The Executive Order banned any, quote, "form of digital money or monetary value denominated in the national unit of account that is a direct liability of Central Bank." I'm concerned that this extremely broad definition could go far beyond CBDCs.

(29:23)
Well, thank you very much. My time is up, but I appreciate your presence here today, and I appreciate your willingness to stand up for your right-

Chairman Hill (29:30):

The gentlewoman's time-

Mrs. Waters (29:33):

… to be the chair.

Chairman Hill (29:33):

… has expired. But I-

Mrs. Waters (29:37):

And I now yield back. Thank you.

Chairman Hill (29:37):

… but I do invite the Chairman to respond to the gentlewoman's question on CBDCs in writing. And now we turn to the vice chair of the full committee. Bill Huizenga-

Mrs. Waters (29:44):

Thank you.

Chairman Hill (29:45):

… the gentleman from Michigan.

Mr. Huizenga (29:47):

Thank you Mr. Chairman, and Chair Powell. Good to see you again. You had talked a little bit about your review, I'm going to start there. Obviously a lot has changed in the last five years. The pandemic,

Mr. Huizenga (30:00):

Pandemic inflation, higher interest rates, to name a few. However, I believe your dual mandate of maximum employment and stable prices should remain the ultimate objective. I assume you agree with that. Let the record reflect slight head nod on that. This committee is going to be very focused on monetary policy and with my good friend from Oklahoma, Mr. Lucas, chairing a task force that I'm happy to be a part of, we're going to be addressing some of those issues. Chair Hill touched on some of the rules that have been discussed. I for one, have always been particular to Taylor Rule, but there's a number of rules, I know you go through those. At one point I suggested that we could call it the Yellen rule, with Chair Yellen, but there needed to be some sort of public declaration of what to benchmark against. I still feel that that is of some importance. You outlined your timeline on this particular review, but I'm curious, do you believe that the last policy framework limited the Fed's response to raising inflation, something that you and I have talked about over the years?

Chairman Powell (31:09):

No. I'll tell you why we didn't raise rates. We thought the inflation was transitory. I can show you forecasts from the end of 2021 by us, by staff, by the blue chip. Everybody thought it was going to be transitory. That's why we didn't raise rates.

Mr. Huizenga (31:24):

And I also distinctly remember a hearing where you and Secretary Yellen at the time were sitting next to each other and it looked like you visibly scooted away when I asked you both whether it was still transitory and you had for the first time ever a separate answer. Her answer was yes, it still was transitory. You gave a very Fed-speak answer of, "We no longer believe the data shows that, so no." And we, to kind of go to Chair Hill's Point, we think that might have been a little late on that. On back to the review, I'm curious, what sort of input are you looking for from the public and from Congress as you go into that review?

Chairman Powell (32:09):

So from the public we'll do a series of Fed Listens events, which were very successful the last time, and it involves us sitting down and meeting with people, some of whom know a lot about what the Fed does, some of whom just tell you what's going on in their communities. It was a very successful part of our outreach last time. In terms of Congress, we will keep you informed of our progress. We welcome anything you may offer. But we're open to the public on this, it's a public review as distinct from what we were doing before, and so we're welcoming views from all over.

Mr. Huizenga (32:43):

And not to get ahead of the Chairman by, I look forward to us having more conversations about that with the working group. I want to switch topics and focus a bit back to the bank supervision. Michael Barr has stepped down from his position as vice chair for Supervision, effective at the end of the month. And whether frankly, president Trump fills that position is entirely up to him. But in the absence of a vice chair for supervision, you're still working on it. I think your quote to the chairman was, "There's no time for a holiday." Now this vice chair of supervision is a Fed governor that has frankly extraordinary powers and responsibilities. And ultimately my question to you is, does the Fed really need a separate vice chair to complete its work? Now I got here after the 2010 election, in 2011, shortly after Dodd-Frank was passed, I know this vice chair position was created by Dodd-Frank. I've just been dealing with the echo effects now for the last going on 15 years of Dodd-Frank. Do we really need to have a separate vice chair of supervision?

Chairman Powell (33:55):

So for many years, as you know, we did our business without a vice chair for supervision. What that means is everything goes through the full board.

Mr. Huizenga (34:02):

And it was effective?

Chairman Powell (34:03):

I think it was. And also there was less volatility.

Mr. Huizenga (34:07):

Explain that. Why was there less volatility?

Chairman Powell (34:10):

Well, because you've got a group of seven people on the board. And there will be some, as appointments change, there'll be some changes in the approach to regulation. But putting it all on a single person, admittedly just to recommend to the board, it can lead to some volatility in these things, which is really-

Mr. Huizenga (34:28):

Larger swings in policy?

Chairman Powell (34:29):

Yeah, larger swings in the kind of things. And that's not great for the institutions that we want to regulate. We want to have a good set of regulation that doesn't swing back and forth very much. The question of whether it's a good thing to have in the law is really one for you. But I will tell you, we will, once Vice Chair Barr completes his term in a few week,. We will continue on until there's a new vice chair for supervision and we can very much get our work done.

Mr. Huizenga (34:53):

Or if there is one. So with that, Mr. Chairman, my time has expired.

Mr. Chairman (34:57):

Thank the vice chairman. Mr. Huizenga yields back, we recognize the gentleman from California, Mr. Sherman for five minutes of questions.

Mr. Sherman (35:05):

Chairman Powell, you are the only bipartisan person or thing left in Washington. You were appointed by Obama. Trump gave you a promotion, Biden reappointed you, and you were the only Biden appointee not to hear the words, "You're fired" from our president. So I hope we listen to what you have to say because you're the only person that I can identify in Washington that has support on both sides of the aisle. Mr. Huizenga mentions the importance of your dual mandate, project 2025 calls for abolishing the dual mandate and eliminating a mandate that you focus on employment. If we were to give you just one mandate dealing with price stability and take away the mandate on employment, over the next 10 years, would our GDP be higher or lower?

Chairman Powell (36:06):

It wouldn't be possible for me to say.

Mr. Sherman (36:12):

Does the fact that you focus on employment as one of your tool mandates lead to lower unemployment, higher employment in our country?

Chairman Powell (36:22):

It may do so. We do balance those things. To some extent that may be right.

Mr. Sherman (36:28):

Chair Hill spoke about how important it is that you maintain your independence. I noticed that in light of the hiring freeze, the Fed has removed all its job postings. I'm hoping that your personnel policy will be as independent as everything else at the Fed. But I'm more concerned with the president's statement at 7:58 this morning, where he said interest rates should be lowered. He said it. Will that influence what the Fed actually does?

Chairman Powell (37:02):

I, as a practice, never comment on anything the president says, but I think people can be confident that we'll continue to keep our heads down, do our work, make our decisions based on what's happening in the economy, the outlook, the balance of risks.

Mr. Sherman (37:15):

And statements by elected officials are not among the things that cause you to act one way or the other?

Chairman Powell (37:20):

That's correct.

Mr. Sherman (37:21):

Thank you.

(37:25)
He went on to say, he said, "Interest rates should be lowered, something which would go hand in hand with upcoming tariffs. Let's rock and roll America." I certainly agree with the Rock and Roll America, but the Peterson Institute says that the policies that the president ran on will raise the CPI by between four and seven and a half points and I think the biggest element of that is the proposed tariffs. If we have higher tariffs across the board, say 10 to 25%, would that increase the cost of living? And would an increase in the CPI or related indexes of the cost of living lead to higher interest rates?

Chairman Powell (38:12):

There are many organizations, public and private, whose role is to speculate publicly about what this might be. What we're doing is we're reserving judgment until we actually know what the policies are.

Mr. Sherman (38:23):

But if we have a higher cost of living, does that lead to higher interest rates? The CPI goes up, or CPE, excuse me.

Chairman Powell (38:30):

Well if inflation goes up in general, forget about tariffs in general, of course we will use our tools, which is the interest rate, to bring it back down to 2% over time.

Mr. Sherman (38:40):

Okay. Yesterday you told the Senate we're going to release the stress test scenarios before we implement them. Will you take a holistic look at large bank capital requirements, including the capital ratios like Basel three endgame stress testing, to make sure that you don't have a contraction in the ability of credit to Main Street businesses?

Chairman Powell (39:06):

Yes.

Mr. Sherman (39:07):

Great. There's a proposal in project 2025 that we abolish Fannie and Freddie. If there was no explicit or implicit federal guarantee for those who invest in mortgages, would that lead to higher mortgage interest rates?

Chairman Powell (39:26):

Since you're no longer be borrowing on the credit of the United States, in other words, so Fannie and Freddie would be privately funded, it could lead to that. I think privatizing Freddie and Fannie might have other virtues too, though, as has been considered many times by this committee and others.

Mr. Sherman (39:41):

Might have some virtues, but it would lead to higher mortgage rates?

Chairman Powell (39:44):

It could.

Mr. Sherman (39:47):

The CFPB has been put on ice, but all the regulations remain in force. So if you're a bank that wants to comply with those regulations, there's nobody that can give you any clarification, so you don't know. And if you're a bank that doesn't want to comply, the next presidential election may put into practice a CFPB that enforces all the regulations that the Trump administration has tried to eliminate. Does that cause confusion for banks?

Chairman Powell (40:20):

You're speculating about what the situation might be. I would say that it could, yeah.

Mr. Sherman (40:26):

I yield back.

Mr. Lucas (40:28):

Gentlemen yields back. I now recognize myself for five minutes. Chair Powell, let's talk about the balance sheet. As we've discussed several times before, the consistent and massive growth of the federal debt creates long rant run challenges for both the United States and saddles future generations with an onerous burden. But it also creates a challenging environment for the markets as the Treasury market expands in kind. As the Fed engages in Quantitative tightening, allowing the treasuries to roll off, the Fed is careful to ensure that there are ample reserves for the balance sheet. Could you briefly discuss the conditions that determine the ideal level of reserves?

Chairman Powell (41:06):

Sure. So let me say that we intend to slow, and we have slowed, but then stop the process of shrinking our balance sheet at a time when we think that reserves are somewhat above the level that we judge to be consistent with our ample reserves framework. So what that means is, we want reserves to be ample, meaning we don't want them to suddenly appear to be shortages of reserves. So we're going to think of where those shortages might appear and we're going to put a buffer on top of that because nothing good happens when there's not enough liquidity. So that's our overall framework. And right now we feel like all the evidence suggests that reserves are still abundant, which is more than ample.

Mr. Lucas (41:50):

As you know in early 2021, the Fed stated that it would invite comments on the supplemental leverage ratio. That has not happened yet. I've made the point that the growth of the US Treasury market paired with a decreased willingness of banks to act as intermediaries is a major issue on the horizon. When former Treasury Secretary Yellen was before this committee last year, I asked her about the resiliency of the Treasury market, specifically about the wisdom of permanently modifying the SLR. She said it's something that the banking regulator should consider. Does the Fed plan to finally look at the SLR?

Chairman Powell (42:27):

Yes, I believe we will. I have, for a long time, like others, been somewhat concerned about the levels of liquidity in the Treasury market. The amount of Treasuries has grown much faster than the intermediation capacity has grown and one obvious thing to do is to reduce the effective supplemental leverage ratio, the bindingness of it. So that's something I do expect we will return to and work on with our new colleagues at the other agencies and get done.

Mr. Lucas (43:01):

Because I think my colleagues are aware that over the course of recent times, literally we have eight times as much debt to process, but only half as many major market makers. The Federal Reserve is not immune to politics. You, like every Fed governor, go through a lengthy confirmation process in the Senate and of course you're required to answer to Congress in hearings like this. I can trace a major political turning point at the Fed to the passage of Dodd-Frank, which greatly expanded the Fed's regulation and supervision authority. Chairman Powell, do you worry that the independence of the Federal Reserve's monetary policy function is any way hindered by its role as a bank regulator? Can you do both?

Chairman Powell (43:43):

Well, we can and we do and we'll continue to do that. Clearly the regulatory and supervisory side is more contentious in political circles, but we will continue to carry it out as best we can and to do so in a non-political way as best we can.

Mr. Lucas (44:01):

And clearly that'll be a major discussion topic in the task force. In my remaining time, could you discuss the Fed's five-year review of monetary policy? What are the categories of issues you think that will be helpful to receive feedback on?

Chairman Powell (44:17):

So, a good part of it will be looking at the changes we made in 2020, which were made in an environment where we had been stuck at the effective lower bound at zero for seven year and the highest we got our rate really was sustainably was one point a half percent, and that was the highest of any advanced economy central bank. So the concern was that at the slightest downturn we'd be back at the zero lower bound and we'd be stuck, so we were looking for ways to make up for that. So then the question is, we got this inflation out of the pandemic and the events related to it, are we in a different place now? And I think the chances are pretty good that maybe that the effective lower bound is still a concern, but it's not the base case anymore. So we need to look at that and decide what are the implications of that for our framework.

Mr. Lucas (45:08):

Thank you Chairman, and I look forward to several more discussions on these topics. And with that I yield back the balance of my time and I recognize the gentleman from New York, Mr. Meeks, for five minutes.

Mr. Meeks (45:17):

Thank you Mr. Chairman. Chair Powell, thank you for being here today. And you've indicated in past hearings that geopolitical tensions pose important risks to global economic activity. In fact, around this time last year when you appeared before the committee, you and I discussed how conflicts around the world, specifically the war in Ukraine, had impacted the cost of things like groceries in the United States of America. At that time you indicated that the war had caused commodity prices to move sharply back home. Does that sound correct to you, or familiar to you?

Chairman Powell (46:01):

Yes it does.

Mr. Meeks (46:03):

So just to reiterate, in this interconnected world that we live in, would it be safe to say that economic instability in other countries has the potential to impact economic factors here in the United States?

Chairman Powell (46:21):

Sometimes, yes.

Mr. Meeks (46:22):

And so given that fact, would it seem like a smart move for the United States government to remove one of our most effective strategic tools that by mandate assists US commercial interests by supporting developing country's economic growth in building country's capacity to participate in the world trade? Would you agree with that?

Chairman Powell (47:01):

It's not for me to be the judge or to say on that.

Mr. Meeks (47:05):

Well, we do know that a number of USAID, they buy a lot of their agricultural products, etc, from American farmers. And in fact, it helps the US economy when you look at the volume of agricultural products that are being bought so that we can continue to be a part of the rest of the world. Would that be correct?

Chairman Powell (47:39):

As far as I know, yes.

Mr. Meeks (47:41):

So today we find ourselves facing a situation where the president and his DOGE buddy Elon Musk seemed hell-bent on dismantling USAID no matter the consequences, even if they are dire. To me, the assault on this congressionally authorized body represents an attack on the rule of law and should outrage every member of this body, every member, Democrats and Republicans alike. And I know that your interest is squarely within your dual mandate and not foreign policy. I sit on both committees. I'm here, but I'm also the ranking member on the Foreign Policy Committee. And so I can't sit here today and pretend that what we are doing won't impact employment and economic stability right here in the United States of America. Weakening USAID will fuel global crises, endanger American security, embolden other nations like China and Russia, and leave us here in the Trump administration solely responsible for the fallout.

(49:12)
So I have to take this opportunity to urge my colleagues on the other side of the aisle to also stand up for USAID. Anytime we travel, we go visit what they do, we go visit the good that they do, we go visit what their and how their economies improve so that they can be part of the global economy. So, if not because people just care about the rest of the world, then because we care about our country and recognize that instability elsewhere threatens our stability right here. It is extremely important in an interconnected world because the economy is interconnected around the world. We cannot isolate ourselves from the rest of the world. I thank you Mr. Chairman and I yield back the balance of my time.

Mr. Lucas (50:20):

Gentleman yields back. The chair recognizes the gentleman from Texas, Mr. Sessions, for five minutes.

Mr. Sessions (50:24):

Mr. Chairman, thank you very much. Chairman Powell, welcome. We're delighted to be here and I hope that this comes with greetings from every single member that we appreciate and respect you taking the time, even though you're expected here, we think you show up and we admire you. Mr. Chairman, you and I both know that way back when, in we assume '21, that there was a decision made by the Fed that gets close to quantitative easing and then the term tapering. And we know that it was sold as a monetary stimulus to help the country, and I get that. There was about, in my opinion, $2.33 trillion that were taken out in loans. And Chairman just spoke a minute ago about the term debt versus growth. Debt versus growth about this amount of money that sits out there on the debt side. Could you please take a minute and discuss this issue and how we should be looking at it? Thank you.

Chairman Powell (51:34):

Sorry. Mr. sessions. Are we talking about asset purchases that we made during the-

Mr. Sessions (51:38):

We are. We're talking about when the Fed went and sold treasuries.

Chairman Powell (51:43):

No, we bought treasuries.

Mr. Sessions (51:45):

Bought treasuries.

Chairman Powell (51:46):

Yeah, we bought treasuries. So it was a situation, I'll tell you why we did it. We were just out of the worst part of the pandemic and we didn't know how, frankly, how good things were going to be, how strong the economy. We were very concerned, COVID is still raging, and it actually had a very strong wave right into '22. But we didn't want to stop buying treasuries too soon because that has a stimulative effect on the economy because we didn't want to provoke an unwanted tightening in financial conditions at a time when we thought the economy was still vulnerable. If you look back in hindsight, we probably could have done that earlier and halted purchase earlier. In any case, we turned right around and started shrinking the balance sheet and we've gotten-

Mr. Sessions (52:33):

You moved it from about 120 a month to 110.

Chairman Powell (52:39):

We've been tapering for two years now.

Mr. Sessions (52:41):

That's correct.

Chairman Powell (52:41):

And we're down more than $2 trillion and we're still going. We're still going. So that's why we did what we did.

Mr. Sessions (52:48):

Tell me what that looks like in the longer term aggregate versus with what the Chairman said, debt versus growth. Because we believe the debt remains and the growth is not equaling that ability to pay it back.

Chairman Powell (53:06):

So what happens is we borrow money to cover the spending that Congress has done. Our purchases don't affect that. We're basically issuing reserves, which is cash, and we're retiring Treasury securities. And the effect of that is to drive down long-term rates. That's the whole reason for QE.

Mr. Sessions (53:26):

And what are you paying for those long-term rates?

Chairman Powell (53:29):

Market rates. We're paying exactly the market.

Mr. Sessions (53:31):

And what would that market be, approximately a year ago or to now?

Chairman Powell (53:36):

Well, of course we're going in the other direction now, we're shrinking now, but when we were buying the tenure was yielding very, very low. The yield limit was quite low during the pandemic, extremely low, because growth was slow, there was a lot of demand for treasuries. So we were pushing down rates to support economic activity. When you can't lower your policy rate anymore and you want to do more stimulus, that's really the main thing you can do. Actually the forefather of that was Milton Friedman who came up with that thought way back in the past. But that's what we did. And then as I mentioned, we turned around as soon as we lifted off and started raising rates, we immediately started shrinking the balance sheet and we've shrunk it a lot, $2 trillion and still counting.

Mr. Sessions (54:23):

You have shrunk it $2 trillion?

Chairman Powell (54:25):

Yes, we have.

Mr. Sessions (54:27):

Okay. And what do you believe remains and you believe you're now stable for moving forward?

Chairman Powell (54:32):

So I think we have a ways to go. Actually, the level of reserves, which is the thing we're focused on, hasn't really changed. All of that has come out of what's called the Overnight Reverse Repo Facility. I'd be happy to spend some time with you on this. This stuff is very complicated and difficult.

Mr. Sessions (54:47):

Yes, I've tried to find new data on it and the last I found really was a CRS report of '22. So what's-

Chairman Powell (54:55):

It's very, very big changes since then.

Mr. Sessions (54:57):

…called 1/27/22.

Chairman Powell (54:57):

Yeah.

Mr. Sessions (54:59):

And so the changes that you speak of are important.

Chairman Powell (55:03):

Yeah.

Mr. Sessions (55:03):

And so I would appreciate that time.

Chairman Powell (55:07):

I'd be happy to do that.

Mr. Sessions (55:08):

Great. I want to thank you for being here. The confidence that the American people have that we will turn, not just the economics of their lives, but of the country is very important. And I today spoke about the country. And I want to thank you for your service and time. Mr. Chairman. I yield back.

Mr. Lucas (55:29):

The yields back the chair now recognizes the gentleman from Georgia, Mr. Scott, for five minutes.

Mr. Scott (55:34):

Thank you very much, Chairman. And welcome Chair Powell. Chair Powell, I'm worried about these tariffs and I want you to kind of share with us your thoughts on these tariffs. I'm worried about, I think the president is wrong here. Tariffs can cause a terrible situation to the economy. I'm concerned about the inflationary impact on tariffs and where costs increases from the tariffs, there's a cost to these tariffs. And we need not move into this area blindly. And some of these costs will be absorbed by business companies, but there are other costs that will be borne by the American consumers. We don't even understand this. And yet you have the President just using these tariffs as a means of fight, or like a war. And this is going to do it.

(56:52)
Everybody is not going to be Mexico or Canada. And while we got a little time, I want your thoughts on the dangers of these tariffs. The stock market is anticipating rate cuts. What will these tariffs do about that? Does the Fed see financial market stability as a factor in its decision-making process when considering the rate cuts? And here is specifically what I want you to get to, in light of the president, and politely I will say his ill-crafted tariff strategy, do you foresee future rate cuts as a result of inflationary issues or due to a weaker labor market, and what do you consider to be promising inflation data? That's our big fight. And these tariffs are going to just add to inflation like a rocket ship. Your thoughts and share with us, give us your opinion of the danger of these. There's a cost here. Tell us what you think about this.

Chairman Powell (58:22):

The president has certain authorities over tariffs. Congress has authorities over tariffs. The Commerce Department is involved in some ways. But the Fed has no role in setting tariffs and we don't comment on decisions made by those who do have that authority. We try to stick to our own knitting. In this particular case, it's possible that the economy would evolve in ways that, because of tariffs or partly because of tariffs, that we would need to do something with our policy rate. But we can't know what that is until we actually know what policies are enacted. And remember, it's not just tariffs. There are significant changes to immigration policy, fiscal policy, and also regulatory policy. You put all four of those, and all four of those were things that the president was elected to do, we will then try to make an intelligent judgment about the overall effect on the economy of those and conduct our policy accordingly. But it's not our role in any way to comment on the wisdom of the policies that are enacted by Congress or by the administration.

Mr. Scott (59:33):

Will he have an effect on whether or not you'll resume your plan to cut the interest rates this year or continue to hold?

Chairman Powell (59:53):

So we'll make our decisions as we go about what to do with interest rates based on the data that we

Chairman Powell (01:00:00):

We see the outlook, the evolving outlook, and the balance of risks. And we'll be considering all of those things. We won't be focusing on any particular policy and I can't tell you what we'll be doing, because it will really depend, it's fairly uncertain environment right now. The underlying economy is very strong, but there's some uncertainty out there about new policies. We're just going to have to wait and see what the effects of those policies are before we think about what we can do.

Mr. Scott (01:00:30):

Well, all I want to say, God bless you. I know your strength. We've worked together over the years on many things, and this nation is grateful that we have you, your wisdom and intellect at this time.

Mr. Lucas (01:00:47):

I agree, but the gentleman's time has expired. Gentleman yields back. Chair now recognizes the gentlelady from Missouri, Ms. Wagner.

Mrs. Wagner (01:00:54):

I thank the chair and it's good to see you again, Chairman Powell. Chair Powell, under the Biden administration, American families were hit with a huge stealth tax from, as we've spoken about, inflation. That drove up grocery prices and led to high rates on things like mortgages and car loans. Since 2021, the average Missouri household is paying about $1,100 more per month due to inflation. To put that number into perspective, the median family income in Missouri is $69,000. These families have had to spend $13,000 more of their annual income on the exact same goods. What specifically is the Federal Reserve's plan for? Making life easier for everyday Americans.

Chairman Powell (01:01:51):

So the best thing we can do for Americans is to vigorously pursue both stable prices and maximum employment. We're trying to get back to a long expansion where prices are stable around 2%-

Mrs. Wagner (01:02:07):

You seem to be there on labor as you've pointed out. So tell me what else.

Chairman Powell (01:02:11):

Sorry?

Mrs. Wagner (01:02:11):

You seem to be there on labor. So what else?

Chairman Powell (01:02:15):

I would say we're close but not there on inflation. And you did see today's inflation print, which says the same thing. I mean we've made great progress toward 2%. Last year inflation was 2.6%. So great progress, but we're not quite there yet. So we want to keep policy restrictive for now so that we can see-

Mrs. Wagner (01:02:35):

We're definitely not there for 30-year mortgages, upwards of 7%, Chair Powell. So let me switch topics. I continue to believe that, as we've spoken about and as was brought up by prior colleagues here, that federal banking agencies, including the Federal Reserve, should scrap the flawed Basel III Endgame proposal and start over. You talked a little bit about how you plan to perhaps do that and a timeline potentially, but how will the public, Chair Powell, be able to provide comments on any revised proposal as required by the Administrative Procedures Act?

Chairman Powell (01:03:17):

So I fully expect, and I think it's a good idea for us, for the United States to finish Basel III in a way that's in keeping with Basel and also with what other jurisdictions are doing, comparable jurisdictions.

Mrs. Wagner (01:03:29):

The key there is Endgame. This has been going on for two decades.

Chairman Powell (01:03:33):

Yeah. Where's the end already? Right? So we'll put all of that out for comment again and welcome the comments for all commenters, that-

Mrs. Wagner (01:03:43):

I have to make sure we're following the Administrative Procedure Act-

Chairman Powell (01:03:45):

Oh yes.

Mrs. Wagner (01:03:46):

… as you move forward.

Chairman Powell (01:03:46):

We will. We will.

Mrs. Wagner (01:03:47):

Chair Powell, I understand you are interested in making the stress test scenarios that assess how a bank will perform through a crisis more transparent. As things stand now, while the Fed may make some information public, it doesn't show its math, which makes it difficult to assess the robustness and analytical rigor of the stress test. Recently, the Federal Reserve announced that due to the "evolving legal landscape" it would begin to take public comment on its stress test models and annual scenarios. Can you describe the changes in the legal landscape that have caused the Federal Reserve to suddenly seek public comment on its stress test regime and why it did not seek public comment from the beginning?

Chairman Powell (01:04:42):

So we're an agency that's strongly committed to following the law as written by Congress and as interpreted by the Supreme Court. In the past few years we've seen a string of administrative law cases from the Supreme Court, which are dealing with different issues, but there's a common theme and that is significantly less deference to the views of agencies-

Mrs. Wagner (01:05:03):

Correct.

Chairman Powell (01:05:04):

… as compared to those of courts. Also, just a raised expectations for compliance with the Administrative Procedures Act. We take that very much to heart and this is one of the things that we're doing because of that. And we feel the appropriate-

Mrs. Wagner (01:05:17):

You can look at things like Chevron Deference, you can look at the EPA ruling by the courts, and they're returning the power back to the people and to Congress, not the administrative state, not those agencies and rule makers.

Chairman Powell (01:05:30):

So because of those things, we are putting… You went through it, we're putting the models and everything else out for comment and taking similar steps.

Mrs. Wagner (01:05:42):

Well, I'm glad to see that. I understand the Fed intends to complete a comprehensive review of its monetary policy strategy, tools and communications' practices. You mentioned that. What is the timeline?

Chairman Powell (01:05:52):

We expect to complete our work and announce the results by the end of the summer.

Mrs. Wagner (01:05:57):

End of the summer. Thank you. I yield back.

Mr. Lucas (01:05:59):

Gentlelady yields back. The chair recognizes the gentleman from Massachusetts, Mr. Lynch for five minutes.

Mr. Lynch (01:06:03):

Thank you Mr. Chairman. Welcome, Chair Powell. Good to see you. Thank you for your good work. Chairman Powell, the Senate just filed a bill called the Genius Act. I'm always worried about anything that comes over from the Senate with the title Genius in it. But it is an attempt to provide a regulatory framework for cryptocurrency. And in that proposal, which is similar in some respects to the house proposal, it would allow individual states to oversee issuers and there would be no central federal authority. The idea is to disperse the responsibility from state to state. My overriding concern is that with that spread and expansion of crypto and the president is 100% behind it, he just started his own meme coin, he's making a lot of money off of that, which is another issue. My concern is that the spread of an expansion of crypto will infect the traditional banking system because it's a volatile, speculative asset and we've seen some very sudden disasters with crypto.

(01:07:31)
I'm just wondering, are there any backstops that we can use, any firewalls that we can put in place that might insulate the traditional banking system? Because they have access to the discount window and the FDIC insured, so there may be second order impacts if we have a collapse of a major crypto issuer. Are there any extra things that we can do to protect the traditional banking system?

Chairman Powell (01:08:03):

Yes. So first I would say there are really two things that are happening. One is, banks are serving crypto customers, and we don't want to get in the way of banks serving perfectly legal customers as long as they understand the risks and that sort of thing. We don't want to single out any particular-

Mr. Lynch (01:08:21):

Are you speaking to custody?

Chairman Powell (01:08:24):

Well, custody is more, the second thing is undertaking activities on their own. In that case, I do think it's appropriate to, as usual as bank supervisors, make sure that we understand and banks understand the risks that are involved in the activity that they're taking inside an insured depository. On the other hand, you don't want to go too far. I think there were a bunch of disasters, as we all remember, and we were reacting to some extent to those. You don't want to go so far as to overplay your hand on that. So I think we need to be mindful that many of these activities can very well be done inside of banks, and custody may well be one of them. In fact, in Fed regulated banks, there are lots of crypto activities happening now, they've just happened under a framework where we made sure that the bank understood and we understood exactly what they're doing.

Mr. Lynch (01:09:16):

Right. We also have the example of Silicon Valley Bank and Signature Bank, First Republic Bank, one of the triggering events there. I mean obviously the risk management was very poor in that respect and they got on the wrong side of interest rates. But there were also some failures of issuers who had huge deposits at Silicon Valley, I believe, or Signature, maybe both of them. And the suddenness of their collapse caused a run for the exits. Luckily with a scramble, we were able to save that situation so it didn't create a greater contagion. But are there steps that we can take that might strengthen our ability to respond to that type of collapse as well?

Chairman Powell (01:10:23):

Yes. So in the wake of Silicon Valley Bank, we did work with many, many medium sized banks that had any of the characteristics that we saw. And you mentioned a long position in long-term securities that was underwater, along with a very unstable deposit base made up mostly of uninsured deposits. In the case of Silicon Valley Bank, it was a lot of similar private equity and venture capital and hedge fund companies, where they all just pulled their money out at the same time. So it was a bank run. And bank runs are very destructive whenever they happen. So we looked for that pattern. We worked with companies, too, who had any aspect of that pattern. And we were successful, I think, in not having that crisis spread very broadly, and that was a good thing. Looking forward though, we need to not forget that lesson and make sure that funding bases are stable and that we're focused on the basics of banking, which is credit risk, interest rate risk, liquidity risk.

Mr. Lucas (01:11:28):

Gentleman's time has expired.

Mr. Lynch (01:11:30):

Thank you. I yield back.

Mr. Lucas (01:11:31):

Gentleman yields back. Chair recognizes the gentleman from Kentucky, Mr. Barr for five minutes.

Mr. Barr (01:11:35):

Chairman Powell, let me ask you a quick monetary policy question and then turn to bank regulation and Treasury market structure. I know hindsight is 2020, but it's important to learn from mistakes as you know. And you've conceded that the Fed miscalculated on inflation and mischaracterized inflation as transitory in 2021-2022 time period. Given that inflation remains stuck above the Fed's 2% target, will you commit to scrapping the flexible average inflation targeting framework? And if not, why wouldn't you commit to returning just to a simple 2% target?

Chairman Powell (01:12:13):

So we're just beginning the review. It'll be done, as I mentioned, by the end of the summer and that's the exact question we'll be asking. I can't commit to a particular outcome. I need to respect the process and the views of the other 18 participants on the FOMC.

Mr. Barr (01:12:29):

Yeah, I appreciate that. And I just hope that in that process that you and your colleagues recognize that that framework allowed rising inflation to persist and allowed the Fed to mislabel it as transitory. Let me turn to bank regulation. In October of last year, I led a bipartisan code L to Basel, Switzerland, met with the Basel committee on bank supervision. And there the committee actually conceded to us, agreed with me, that the Michael Barr proposal of July 2023 actually gold-plated bank capital requirements, and instead of actually promoting international harmonization actually made American banks less competitive. They conceded that to us. So I applaud the Fed for not moving forward on that July 2023 proposal that would've made it harder for large banks to, among other things, facilitate the smooth functioning of the US Treasury market, including holding treasuries on the balance sheet. A couple of questions. One is, should the goal of our bank capital rules, should it be regulatory harmonization internationally or should it be American economic competitiveness?

Chairman Powell (01:13:46):

I mean clearly the goal is to have a strong banking system that supports American economic activity and growth. That's the ultimate goal. What you get from Basel is a global floor so that the other banks can't run on less capital and have a short-term advantage. That was the whole point of Basel, was to get everybody to the same kind of level so that it wouldn't be the race to the bottom.

Mr. Barr (01:14:09):

And I see that utility, but I think the goal of our regulatory system should be America first and it should be about American economic growth and competitiveness. But let's talk about the Treasury market issues. Obviously we're issuing a ton of debt right now. In fact, according to BlackRock, we're issuing $573 billion of Treasury bonds every week. To put that in perspective, the entire national debt of Australia is $573 billion. So we're issuing Australia every week in this country, if you want to think of it that way. Would reducing excessive capital and liquidity requirements on US banks for intermediating US Treasury market take heat off of US capital markets and increase Treasury market liquidity and stability?

Chairman Powell (01:14:56):

I strongly think it would help.

Mr. Barr (01:14:59):

Well, I think that's especially an important comment in terms of your regulatory approach because, as you know, maturing bonds were being financed at an average of near zero during Covid, and now they're about double the cost of the average of about 3.5%. So now is not the time to make it more difficult for banks to hold treasuries. Let me just drill down with a little bit more detail on this Treasury market structure issue. Do you agree that the supplementary leverage ratio and the enhanced supplemental leverage ratio, the ESLR, are problematic as they create a disincentive for banks, especially large banks, broker-dealer affiliates, to serve as intermediators in the primary, secondary and repo markets for US Treasury securities?

Chairman Powell (01:15:48):

I do.

Mr. Barr (01:15:49):

And so, you would commit to reviewing the ESLR framework to create greater capacity for our banks to provide liquidity in the Treasury market?

Chairman Powell (01:15:59):

I think it's time to move on the ESLR. And we proposed doing so several years ago, we just didn't follow through on it. So I do think it's time.

Mr. Barr (01:16:08):

Well, thank you for that. And finally, yesterday during your appearance in front of the Senate Banking Committee, Senator Warren asked you about the future of consumer protection laws that the CFPB has abolished. Isn't it true, Chairman Powell, that prior to Dodd-Frank consumer protection laws were implemented by financial institution's primary prudential regulators?

Chairman Powell (01:16:28):

Yes.

Mr. Barr (01:16:29):

And so, if there were a decision by the Congress and doge or whatever to repeal the CFPB, we could return the consumer protection law enforcement function to other financial regulators.

Chairman Powell (01:16:43):

You could, yes.

Mr. Barr (01:16:45):

Thank you. I yield back.

Mr. Lucas (01:16:46):

Gentleman yields back. The chair now recognizes the gentleman from Texas, Mr. Green for five minutes.

Mr. Green (01:16:51):

Thank you, Mr. Chairman. I thank the ranking member as well and would like to associate myself with the comments of the ranking member. And Mr. Powell, I would like to compliment you for standing up to the president for literally preserving the independence of the Fed. It was one of those pivotal moments in time. It would've been more than you're simply resigning. It would've been the president taking control of the Fed with one of his Pluto puppets. Mr. Powell, I'd like to speak to you now about the process of collecting tariffs. When the tariff is collected, at what point does that actually happen? If we impose a tariff product is coming into the country, where is that tariff collected?

Chairman Powell (01:17:47):

Great question. I'm not an expert on that. I'm going to say the Customs Bureau collects it, but I stand to be corrected by anyone who…

Mr. Green (01:17:58):

I believe you're correct. That's what my research reveals. Permit me to extend this. When it is collected, it goes into a coffer. I believe we call that coffer, the general fund. Is this correct?

Chairman Powell (01:18:15):

I don't know, actually.

Mr. Green (01:18:16):

It does. The tariff goes into the general fund. A tariff is another way of saying tax, I believe, for many people. Is that a fair statement?

Chairman Powell (01:18:27):

It is sometimes characterized as a tax.

Mr. Green (01:18:30):

So if the president imposes a tariff, which is a tax, and the tax is collected by some entity on the product before it gets into the country, then the president is putting tax dollars into a general fund such that they may at some point, and these dollars by the way, are coming from the consumer, at some point they may be used to cover some of the appropriations of this very House that the president has enormous control over. So in a sense, what the president can do is aid with the payment of what he would call a tax break, but aid with putting dollars in the pockets of his billionaire buddies that he collects on the tariff that the people in this country ultimately have to cover.

(01:19:41)
I think that the president, while he seems to always avoid the question of how the tariffs are going to be dispersed, he knows that he can at some point use that money to help pay the taxes that he plans to return to his billionaire buddies. I think that's a very sinister way of doing business, to require the consumer to fund tax breaks. I think this president knows what he's doing. I think he believes that the very wealthy need more to do more, and that the poor can do more with less. I don't agree with it and I will do all that I can to prevent it. I yield back the balance of my time.

Mr. Lucas (01:20:30):

Gentlemen yields back the balance of his time. The chair recognizes gentleman from Texas, Mr. Williams for five minutes.

Mr. Williams (01:20:35):

Thank you, Mr. Chairman. And over here, Mr. Powell. Thank you. Good to see you.

Chairman Powell (01:20:39):

How are you?

Mr. Williams (01:20:41):

All right. The Federal Reserve recently withdrew from the network for greening the financial system, stating that its work had extended beyond the Fed's statutory mandate. Well, I agree with this decision. I still have concerns with how previous Fed policies may have discouraged lending to traditional energy sectors like oil and gas, and it should not be the role of the government and the Federal Reserve to be in the business of picking winners and losers. So my question is, can you clarify whether the Fed will ensure that financial institutions are not pressured to making lending decisions based on political or climate considerations rather than sound financial risk analysis?

Chairman Powell (01:21:15):

I confirm that is not our policy. That would be inappropriate and absolutely not something we should be doing.

Mr. Williams (01:21:23):

Okay, thank you. The Basel Committee on Banking Supervision intended for the Basel III Endgame proposal changes to be implemented in a capital-neutral manner to ensure a level playing field for US banks. Following this intent, the previous Federal Reserve vice chair for supervision initiated implementation efforts with capital neutrality in mind. However, his successor politicized the process imposing harsher requirements that exceeded BCBS recommendations. And this approach not only made the proposal more difficult for banks and their customers, but also weakened US banks global competitiveness. Ultimately, he took his eye off the ball and went in the wrong direction. So Mr. Chairman, will the Federal Reserve commit to conducting a more thorough economic impact analysis before finalizing any capital requirements to ensure that they do not hinder economic growth?

Chairman Powell (01:22:12):

Yes.

Mr. Williams (01:22:14):

Regulatory overreach disproportionately impacts community and regional banks, which do not pose system risk, yet they face many of the same capital and compliance requirements as the largest institutions. Many of these banks serve as lifelines for small businesses, rural communities, and the first-time homebuyers. And it's key for the Federal Reserve to protect these institutions and ensure that they are not subject to one-size-fits-all regulations. Mr. Chairman, what steps is the Federal Reserve taking to ensure that new regulations do not force consolidation in the banking industry, therefore make it a little harder for smaller institutions to compete?

Chairman Powell (01:22:52):

So like everybody else, we see the consolidation that's happened really over the last 30, 40 years and community banks going out of business and just fewer and fewer banks. And we know that may be happening due to technology and various things, and also just people moving to cities and away from rural areas, but we don't want our regulation to in any way foster that. So we try hard as hard as we can to make sure that we are not letting the heavier regulation that we apply to the G-SIBs and even to the regionals, slip down to smaller institutions that are serving their community and generally doing a good job at that. And we try hard to do that. This is tailoring. It's very much of a basic value that we have and it's also what we're instructed to do under the law. And I won't say we're perfect, but we do keep this in mind.

Mr. Williams (01:23:46):

I'd like to say thank you for being here. It's good to see you. And with that I yield my time back, Mr. Chairman.

Mr. Lucas (01:23:50):

Gentleman yields back the balance of his time. The chair turns to the gentleman from Missouri, Mr. Cleaver for five minutes.

Mr. Cleaver (01:23:56):

Thank you, Mr. Chairman. Thanks to our very capable and courageous ranking member. Mr. Chairman, thank you for being here today. As you know, my words, the CFPB has been disemboweled over the last 10 days or so, which probably it may not be much concern here on The Hill in certain quarters. But two things that I want to ask you about. Rules over at CFPB must be from time to time updated. Right now there is no system for updating any of the rules. And one of the other issues is that, is there a regulatory gap or are there regulatory gaps that you can see clearly that people can feel, because there is essentially no CFPB for the first time since the end of the Great Recession?

Chairman Powell (01:25:25):

So I don't think we know where this comes to rest. You may have seen last night that the administration nominated somebody to be the permanent head of the CFPB. So I'm not sure what the end intention is here. But if you assume that it goes away, then yeah, there would be a gap. There wouldn't be any federal agency that can examine banks above 10 billion, whether they're state member banks or state non-member banks or national banks. That would be the case. But I'm not sure we know what the end game really is here.

Mr. Cleaver (01:25:59):

In terms of regulatory gaps that are created when the agency was essentially shut down. Now, I'm assuming that there's been somebody appointed to complete the murder of the CFPB. And so, if I'm correct, that means that there have to be or they've been tricking us all these years that they were not doing any regulations. But that's my political position. I was very proud in my community to get the Hispanic Chamber and the Black Chambers to come together. We got a building functioning, a big celebration all across my congressional district in Missouri. And then, about two weeks ago, I started getting these phone calls, as I think many of us on both sides of the aisle have received, about 64% of small businesses have invoices unpaid for more than 60 days. And the Fed now, the Fed's real-time payment system allows individuals and small businesses to send and receive money instantly, which is a step in the right direction, Mr. Chairman. So what is the status of the FedNow adoption for financial institutions?

Chairman Powell (01:27:43):

So it's coming along. As was the case with ACH back in the day, it takes quite a while. There's investment that has to take place on the part of banks. And so we're working with a lot of small and medium-sized banks to get them comfortable with the requirements of FedNow so that this can build up over time. It's something that we expected to be slow in terms of uptake and it has been a bit slow.

Mr. Cleaver (01:28:11):

Well, is technology adoption a barrier for smaller community banks and mission-based lenders?

Chairman Powell (01:28:21):

Yes, it is. And so we work with, there are non-bank service providers that do reach out and do a good job with smaller institutions and we encourage that. Those institutions can't actually have direct access, but their business is to… They have the information and they can go to smaller institutions and show them how to do this. And there's a lot of that going on, and we encourage that.

Mr. Cleaver (01:28:47):

Thank you. Let me just say, I've been here on this committee for 20 years and I've seen chairmen Republicans and Democrats. And whether they're Republican or Democrat, they need to be independent. Thank you, Mr. Chairman.

Mr. Lucas (01:29:00):

Gentleman's time has expired. Gentleman yields back. The chair recognizes gentleman from Ohio, Mr. Davidson for five minutes.

Mr. Davidson (01:29:07):

Thank you. Thanks for joining us today, Chairman Powell. First I want to reflect on our hearing on February 24th here in this same room, frankly via Zoom for a lot of people because it was in the height of Covid. And during my five minutes, you felt confident that inflation being at 1.4% would stay under control and it wouldn't be an issue despite the very large increase in the supply of money. We talked about M-II. In a subsequent meeting, frankly in my office, we discussed Milton Friedman's quantity theory of money in depth, and you believe that it was no longer relevant, that inflation would not hit consumers. We debated asset prices during the hearing, and you claimed that the Federal Reserve's massive purchases of treasuries did not distort the market. Lastly, during the Biden

Mr. Davidson (01:30:00):

… administration, you were actively calling for more fiscal stimulus at times, and at some point along the way, more dollars chasing fewer goods seems to have actually resulted in higher prices. All of these things, inflated money supply, inflated asset prices, inflated consumer prices happened on your watch. In light of the actual outcomes, have your views changed?

Chairman Powell (01:30:29):

Well, I think we've learned a lot. Maybe not the lessons you think, but I do think we've learned a lot from the situation. We, and essentially all of mainstream macroeconomics, thought that this would be transitory, and what that meant was it would go away fairly quickly as the supply side healed and as demand came down and it didn't. It actually did go away and substantially for those reasons, but it took two years.

Mr. Davidson (01:31:00):

To that point, you felt like in the fall that it was going away and things were going to be under control and you had achieved your soft landing, but the market pretty quickly spoke. I mean, frankly, rates went up over a hundred basis points where you guys were going down, and now in today's reports we see that inflation is actually trending up quite a bit from where it was in the fall. So again, in light of the facts, would you reassess what you're doing with the central planning?

Chairman Powell (01:31:30):

You're right that long-term rates went up, but they did not go up because of expectations of higher inflation. There's no evidence of that. It's actually different things. It's not about inflation. Look at markets. Markets are pricing in break evens, I'll show you the chart.

Mr. Davidson (01:31:45):

So, the markets don't believe there's increased risk with massive fiscal spending in the market and they're not demanding a higher premium because there's more risk?

Chairman Powell (01:31:54):

More risk, yes, but not more risk of. It's not mainly about higher inflation.

Mr. Davidson (01:31:58):

When you see asset price inflation and rate inflation, doesn't that result in consumer price inflation?

Chairman Powell (01:32:04):

It's not a question of that. You're saying that the rate increases at the long end are caused by expectations of higher inflation? It's largely not true.

Mr. Davidson (01:32:14):

They certainly influence the inflation, and if they don't influence the inflation, why do you guys try to steer inflation by controlling the rates? I mean, the reality is you've got pressure, including from the president, to lower rates. Are you going to be able to get lower inflation with lower interest rates?

Chairman Powell (01:32:29):

I think our policy's in a good place. I think inflation has come down from high levels to 2.6% last year. My colleagues and I are holding where we are awaiting further evidence of inflation right now.

Mr. Davidson (01:32:40):

A lot of the data that you guys are looking at lag, just like when you said it was 1.4% and everything's fine, I think a lot of people said, "It's not fine." You got to go out and talk to regular people and constituents in Southwest Ohio, just like all over the country, aren't saying they're fine.

(01:32:55)
And they might go that the rate of increase has slowed down a bit, but they know that the prices aren't going down. They're still getting hit pretty hard, and meanwhile, you guys still continue some of these policies, like you're paying banks still not to put their capital at risk in the market. Interest on excess reserves, going back prior to the 08-09 financial crisis, you didn't even pay banks for reserves. Now, you're paying them for an unlimited amount of reserves that they want to hold on it. To what extent is that distorting the market by pulling capital out of the market?

Chairman Powell (01:33:25):

None. Not at all. You're right though. People are unhappy about the price level and that's what we need is several years of real wages moving up higher than inflation.

Mr. Davidson (01:33:35):

So if they're having no impact at all, why is the Fed paying the interest? What is the rationale for the policy? Is it monetary policy or is it regulatory policy?

Chairman Powell (01:33:44):

It's how we-

Mr. Davidson (01:33:44):

Because as Chairman Barr pointed out, you guys are effectively gold-plating the standards and US is actually holding way more reserves than we're required to, and part of that is IOER.

Chairman Powell (01:33:57):

So, what's your question?

Mr. Davidson (01:34:01):

If it's not distorting the market, what's the purpose for doing it? If it has no impact on the market, why are you doing it?

Chairman Powell (01:34:12):

It's the way we exercise interest rate control in the market. I didn't say it doesn't [inaudible 01:34:17].

Mr. Davidson (01:34:16):

Because it has impact, and so I will have questions for the record-

Speaker 1 (01:34:19):

Gentleman's time has expired.

Mr. Davidson (01:34:19):

… and I yield back.

Speaker 1 (01:34:20):

Gentleman yields back. The chair recognizes the gentlelady from Ohio, Ms. Beatty, for five minutes.

Speaker 2 (01:34:26):

Good morning, Chairman Powell, and thank you for being here. I want to thank you for your leadership at the Fed over the last seven years, which I've had the pleasure of being here that entire time. Under both Republican and Democratic presidents through an unprecedented pandemic and certainly an uncertain economy, your apolitical guidance is a testimony to the historic independence of the Federal Reserve, which is absolutely essential for you to carry out your mandate, keep prices stable and achieve maximum unemployment. Over the last few years, inflation as we all have witnessed, has come down from a high of 9.1% in 2022 to about 2.8%. During your tenure under President Biden, we saw the unemployment rate drop to a staggering 3.4% in 2023, its lowest rate that we've seen in some 55 years, and now it sits at around 4.1%, which is still low by historic standards.

(01:35:33)
Although the economy has a way to go and American families as we've heard throughout today are still struggling to pay for expensive groceries and gas and the list goes on, it is truly remarkable what the Fed has managed to achieve over the last few years. Chairman Powell, while I have sat on this committee, you and I have frequently discussed the importance of representation at the Federal Reserve and the benefits of recruiting the best and the brightest that this country has to offer by broadening the talent pool.

(01:36:06)
The Fed has been a great partner to this committee on this issue, which as everyone knows has been very personal to me. However, the White House recently attacked on these very basic concepts are incredibly concerning to me as many of my Democratic colleagues. So I'm just going to ask you a few questions and you may answer them for the sake of time, yes or no, will the Fed continue to follow existing law as passed by Congress that requires all financial institutions, reform, recovery and enforcement agencies to maintain offices dedicated to recruiting from a broad talent base and fostering an inclusive workplace? Yes or no?

Chairman Powell (01:36:51):

Yes.

Speaker 2 (01:36:52):

I am pleased to hear, as my ranking member mentioned AMWI and also talked about implementing it under Dodd-Frank, section 342, but I also am pleased to see that the Fed recruits from Ohio schools that I'm from that great state of Ohio institutions like The Ohio State University or Case Western Reserve University, Denison University, Kenyon University and Oberlin.

(01:37:27)
Do you agree that hiring the best in the brightest, whether it's an economist, whether it's an analyst, a lawyer, a researcher, or IT professionals that this country has to offer means that you don't have to recruit just from Ivy League schools, but you can find these individuals whether it's an HBCU or it's also a state school. Have you found success in recruiting from those universities?

Chairman Powell (01:37:54):

Yes, we have.

Speaker 2 (01:37:55):

Thank you. Do you agree that these recruitment programs at their core do in fact prioritize merit and skill and simply expand the pool of candidates being considered?

Chairman Powell (01:38:09):

Yes.

Speaker 2 (01:38:10):

Do you agree that the Federal Reserve has directly and concretely benefited from initiatives to attract, hire and retain a highly skilled and diverse workforce?

Chairman Powell (01:38:23):

I do.

Speaker 2 (01:38:24):

As I mentioned at the top, the United States economy has come a long way since the pandemic and peak inflation, but hardworking families still are struggling. I was in a store night before last, eggs here in Washington, DC, $14.99. So, I am concerned about how recent policies from the executive branch would impact the Fed's dual mandate.

(01:38:50)
We're seeing reports of course from the Department of Government efficiencies attempt to conduct massive layoffs. Do these policies, whether you agree with them or not, affect the labor market unemployment in the United States economy and how does the Fed plan to achieve maximum employment during these circumstances?

Chairman Powell (01:39:12):

So, we have, I want to say, 170 million people in the labor force. So, they would affect the numbers technically, but it's not clear that it would be material.

Speaker 2 (01:39:24):

Thank you. And my time is up. I yield back. And thank you again for being here.

Chairman Hill (01:39:29):

The woman yields back, the gentleman from Georgia, Mr. Loudermilk, recognized for five minutes.

Speaker 5 (01:39:35):

Thank you Mr. Chairman. And Chairman Powell. Thank you for being here. Before I ask my questions, I want to spend just a moment on data privacy. I find it very ironic that my colleagues on the other side of the aisle and the ranking member and her remarks take a sudden interest in data privacy and especially information regarding individual's transactions when in the IRA bill, they worked very hard to force banks to report the financial transactions of individuals at $600.

(01:40:10)
However, data privacy is something that I have been very serious about since I've been here. I've been fighting the Securities Exchange Commission with their unconstitutional acquisition of PII from individual investors. We're attempting to reform and modernize the Bank Secrecy Act to limit the amount of information taken from individuals, and they often turned a blind eye to the abuses by the CFPB, but it's encouraging to know that they're finally interested in some level of data privacy.

(01:40:43)
I bring that up because there's something about data and data security I want to ask you about. The US Department of Justice announced that it was prosecuting a senior Federal Reserve official for economic espionage, and this just came out in the past few days. This economist who apparently had access to sensitive monetary policy documents allegedly provided non-public information to representatives of the Chinese Communist Party.

(01:41:10)
And I know you're limited in what you can share about this case in a public setting, but to say that I'm concerned would, as others, be an understatement, and in what you can share with us, if you will please answer a few of these questions. Do you know what kinds of sensitive non-public information would this individual have access to in his role at the Federal Reserve?

Chairman Powell (01:41:37):

Him personally? No, I don't. I mean, honestly, I really don't know the facts of the case and I couldn't comment.

Speaker 5 (01:41:46):

Just assuming certain types of information from the role he's in, is there any idea if information was provided to the CCP, what advantages would that give them?

Chairman Powell (01:42:00):

Without knowing what it is, I can tell you what staffers generally get, which is kind of the economic analysis that we do in advance of an FOMC meeting. In modern central banking, we try to be as transparent as possible. So, I don't want to sound like I'm dismissing this case, which we take very, very seriously just as you do. But the truth is what we have that is secret is knowledge of what we're going to do in the future. And in modern central banking, the whole idea is to be transparent about what you're going to do. So nonetheless, we take this case very seriously, to your question.

Speaker 5 (01:42:40):

And I appreciate it, and this is not adversarial at all. I'm really just trying to get to what possibly the Chinese could have done and if they've done anything with it. Of course, if you're unaware of the type of information to access to, you couldn't answer that question. But does the Federal Reserve have an insider threat program designed to combat this kind of espionage?

Chairman Powell (01:43:02):

So we have very, very strict information handling requirements. We do background checks on every Federal Reserve employee, and we start those before they start working there. We do everything we can on this.

Speaker 5 (01:43:18):

Obviously certain things do happen and people slip through the crack. Does this open the door for a more strategic analysis of the Federal Reserve and how to protect critical economic information?

Chairman Powell (01:43:36):

Yeah, I do think that once we see this unfold a little bit and know what the facts are, I think we'll absolutely look and make sure that our controls and that employees understand the consequences of this. And I think they do. But with a few thousand employees, there's going to be one sometimes that breaks the rules. And again, I can't comment on this case.

Speaker 5 (01:43:57):

And I understand it's sensitive, but as things move forward, I'd ask if you could at some point share with me and this committee more information so we can work with you to make sure that our nation's policies are kept just to those… More so kept away from our adversaries, and with that, Mr. Chairman, I yield back.

Chairman Powell (01:44:15):

Be glad to do that.

Chairman Hill (01:44:16):

The gentleman yields back. The gentleman from California, Mr. Vargas, the ranking member on our Monetary Policy Task Force recognized for five minutes.

Mr. Vargas (01:44:25):

Thank you very much, Mr. Chairman. Chairman Powell, thank you. I don't want to insult you in any way, but I hear you're a Deadhead.

Chairman Powell (01:44:34):

I'll own up to that.

Mr. Vargas (01:44:37):

So I assume that with the few words, oftentimes you would know one of the songs of the Grateful Dead. So I'm going to give you here a quote to see if you know who said this. "The risk of a dispute over the position could be a a distraction to our mission." Do you know who said that?

Chairman Powell (01:44:58):

No, I don't.

Mr. Vargas (01:45:01):

Michael Barr did. And I would be remiss if I didn't say and mention that what Governor Barr did recently was very selfless and noble. The rest of that quote, by the way, is, "In the current environment I've determined that I would be more effective in serving the American people from my role as a governor." So, I think he himself took the position that it would be a distraction to continue in that role.

(01:45:34)
I personally think he's a person of great distinction that always managed himself in a way that was appropriate. And I appreciate the role that he played. I didn't always agree with him. He was always agreeable and certainly was able to communicate with him our disagreement.

(01:45:54)
And again, I just want to thank him, because I think what he just did is what a lot of people can't do and that is make a decision that for the betterment of the situation that we're in for our country, he would purposely do something that wasn't necessarily beneficial to him personally. But anyway, I'd be remiss if I didn't thank him.

(01:46:15)
But since I am asking tough questions, I do want to ask you another tough question. See if you know this one. Do you know what the Ponte del Sospiri is?

Chairman Powell (01:46:24):

I do not.

Mr. Vargas (01:46:26):

You might know it in English. It's called the Bridge of Sighs. Are you familiar with the Bridge of Sighs?

Chairman Powell (01:46:32):

Rings a bell. I can't…

Mr. Vargas (01:46:34):

In Venice, the Doge, who was the leader of Venice, had a palace. And across the palace, he had his prison, and oftentimes a prisoner would be taken into the palace and interrogated in a very rough way and then be tortured. And then after he confessed to something he normally didn't do, he would have to walk over the bridge and then into the dungeon and oftentimes die there.

(01:47:06)
However, before he completed the task of crossing the bridge, there are two windows there, and he would stop at the windows and he'd look out over the magnificent city of Venice. And it's the last time oftentimes that person will get to see Venice. And so he'd sigh. And that's why it's called the Bridge of Sighs, the Ponte del Sospiri.

(01:47:27)
The reason I bring that up is I think a lot of Americans feel that way right now, that they're crossing this bridge and maybe it's the last time they've seen the beautiful America that we've had. And they're worried. They're worried about the usurpation of powers. They're worried about the balance of powers. Now, I was very proud of you when you stood up and said, "I can't be fired. President can't fire me. I'm staying." Can anyone up here fire you?

Chairman Powell (01:47:57):

Anyone up there?

Mr. Vargas (01:47:59):

Yeah.

Chairman Powell (01:47:59):

No single person can.

Mr. Vargas (01:48:00):

No single person can. I hope you continue with that independence, because I think this moment is very important. Someone mentioned it earlier, and I think it is very, very important. So with that out of the way, I did want to talk about the dual mandate, especially the employment issue.

(01:48:18)
For a lot of people in America, their job is the most important thing for them, not even their investment, their job. And that's why employment is such an important position, I think, and so important to be part of the dual mandate. Are you looking at changing in any way the dual mandate?

Chairman Powell (01:48:36):

So we don't have that authority. That's [inaudible 01:48:39]

Mr. Vargas (01:48:38):

Who has the authority to do that?

Chairman Powell (01:48:40):

Congress.

Mr. Vargas (01:48:41):

Only Congress?

Chairman Powell (01:48:42):

Yes. Well, Congress would've to pass a bill, which would be signed by the president.

Mr. Vargas (01:48:46):

Say that again, sorry?

Chairman Powell (01:48:47):

Congress would need to pass a bill to change the dual mandate that the president signs.

Mr. Vargas (01:48:51):

That's right. And so I hope that you maintain your independence and at the same time follow the law that there's a dual mandate, and that's I think very, very important to most Americans. And with that, again, I thank you for your service. I thank Michael Barr for his service. I know he's going to continue to serve. I know he'll serve honorably like he always has. And with that, Mr. Chairman, I yield back.

Chairman Hill (01:49:12):

The gentleman yields back. We recognize the gentleman from Middle Tennessee, Mr. Rose, for five minutes.

Speaker 3 (01:49:21):

Thank you, Chairman Hill, and Ranking member Waters for holding the hearing today, and thank you, Chair Powell. Always good to see you here with us. Chair Powell, you may recall the last time we spoke, I brought up the issue of credit risk transfers, CRTs, and urged you to allocate more resources to ensure that ensure that that framework applicants were receiving decisions from the Federal Reserve.

(01:49:46)
I've recently heard back from stakeholders that they are receiving decisions from the Federal Reserve regarding CRT applications. I hope that the Federal Reserve team continues to be focused on cutting down the backlog so that financial institutions can take risk off their balance sheets. Thank you for that.

(01:50:04)
However, I still have concerns that we are not fully optimizing the use of CRTs. In the case of mortgage risk, CRTs have successfully shifted risk from taxpayers to private capital, including capital markets and global reinsurers. While government-sponsored entities have clear regulatory treatment under the Federal Housing Finance Agency, financial institutions lack similar clarity, particularly under Basel III.

(01:50:33)
I understand that the Federal Reserve has begun to provide guidance, but more is needed to ensure that financial institutions can effectively manage risk, stay competitive globally and serve their customers. Chair Powell, do you believe that there should be greater alignment in CRT treatment between banks and GSEs?

Chairman Powell (01:50:56):

That's a great question. I will take your feedback back. Honestly, I don't know the answer to that.

Speaker 3 (01:51:01):

And I just wonder what steps is or could the Federal Reserve take to clarify and harmonize capital rules to promote financial stability and competitiveness in this space?

Chairman Powell (01:51:13):

Again, I'll take back your feedback ,and that is our objective is to be timely and thoughtful in that work.

Speaker 3 (01:51:23):

Thank you. I appreciate that. In April, 2024, Synapse Financial Technologies, a FinTech company that provided banking as a service solutions, filed for Chapter 11 bankruptcy. This event significantly impacted its partnerships with various FinTech firms and banks including Evolve Bank and Trust. To this day, I have constituents in Tennessee's Sixth District who are not able to access thousands of dollars of their funds, and there has been no communication regarding the timeline for resolution.

(01:51:56)
Chair Powell, since the Federal Reserve Board is a supervisor of the Evolve Bank and Trust, could you provide any updates on what you are doing to ensure that my constituents receive their funds, and the expected timeline for them to receive their funds?

Chairman Powell (01:52:14):

So as their supervisor, as you point out, we've been pressing that bank to get money back to their customers, and we're actively engaged with the bank as they take steps to do so and return that money. We're deeply concerned about the complaints that we've heard and aware of concerns raised during the bankruptcy proceedings, and to the extent their violations of law, we'll follow up on that.

Speaker 3 (01:52:35):

Thank you again. And are there any specific steps that my constituents could take to expedite the process or ensure that they receive their rightful balances?

Chairman Powell (01:52:47):

I'll have to come back to you on that. There may be. I don't have anything for you though on that today.

Speaker 3 (01:52:52):

Thank you. And Chair Powell, is there anything else that the Federal Reserve Board is considering to prevent situations such as this on a going forward basis?

Chairman Powell (01:53:02):

Well, I think when we see things it's a lot of pattern recognition. So we'll be looking to avoid things like this happening in the future.

Speaker 3 (01:53:10):

All right, thank you. I think there has been a lack of appreciation for the work that President Trump has done to restore the American workforce. It is his example of calling federal employees back to the office that we are now seeing corporate America follow as well. Chair Powell, as the federal government and companies move to end work from home policies and bring employees back to the office, how do you anticipate this shift will impact key economic indicators such as productivity, urban, commercial, real estate and consumer spending patterns?

Chairman Powell (01:53:48):

That's a really good question. I'm not sure of the answer. I've always felt that I am personally more productive in the office and that's where I work, except on weekends when I work at home. But in terms of productivity, I think there are different views. I know a lot of CEOs feel strongly that people are more productive in the office and we'll just have to see.

(01:54:11)
I also think though that on the other side, work from home did allow very high levels of labor force participation among, for example, women. We had all-time record high participation by women. So, I think there are benefits from work from home. I hope we continue to realize those.

Chairman Hill (01:54:29):

Gentlemen, time's expired.

Speaker 3 (01:54:30):

Thank you. I yield back.

Chairman Hill (01:54:31):

Tom, you expired gentlemen from Illinois, the ranking member on our financial institution subcommittee Mr. Bill Foster, five minutes.

Speaker 4 (01:54:39):

Hi. Well, thank you and thank you for everything you do. I'd just like to get some level setting on what you've been facing in recent. It's my understanding that your inspector general in the Federal Reserve has not yet been fired. Is that correct?

Chairman Powell (01:54:55):

That is correct.

Speaker 4 (01:54:59):

You've not also had the high-level resignations of senior personnel as they've had in Treasury, nothing like that?

Chairman Powell (01:55:06):

No, nothing like that.

Speaker 4 (01:55:08):

As of yet, no. And so no examples of junior personnel being given administrative access to the systems, your technical systems?

Chairman Powell (01:55:19):

Are you talking now about the payment systems that we [inaudible 01:55:21]?

Speaker 4 (01:55:20):

Payment systems or other technical systems?

Chairman Powell (01:55:23):

No.

Speaker 4 (01:55:23):

Email systems? Anything like that?

Chairman Powell (01:55:25):

None of that.

Speaker 4 (01:55:26):

All right. So far you've not suffered through what Treasury has. Have you had any inquiries from other central bankers or commercial bankers from around the world about uncertainty about whether the Federal Reserve will be able to continue doing its job if you suffer the same sort of intrusion that Treasury did?

Chairman Powell (01:55:46):

I haven't, no.

Speaker 4 (01:55:47):

So you haven't? They haven't called you up and said, "What the heck is going on, do we have to defend ourselves against unknown software being installed on the system," and so forth?

Chairman Powell (01:55:56):

I haven't had any such calls.

Speaker 4 (01:55:58):

All right. Let's see. We've also seen a resumption of calls to audit the Fed, which is, as you can remember from that gentleman up on the wall there, this was a big theme of, and first off, the Fed does get audited. Correct?

Chairman Powell (01:56:18):

We are audited in the sense that everyone understands that word to mean, which is we have a Big Four accounting firm who looks at our books and gives us an opinion, does an audit and publishes that opinion. That's all public.

Speaker 4 (01:56:32):

Right. And it's my recollection there've never been any big problems uncovered in this?

Chairman Powell (01:56:36):

No. We actually have quite a simple business model, although we have a large balance sheet. We're like a big community bank only with no credit risk and very simple.

Speaker 4 (01:56:45):

So, in the ordinary sense talk of auditing the Fed, to fully audit [inaudible 01:56:49] sense, it makes no sense. But what was really meant, certainly during the time when we were talking a decade ago, I guess, it was really all about micromanaging Fed monetary policy. That they said, "We want to audit the monetary policy," which doesn't really make sense since it's a policy thing. Do you have any indication of whether the resumption of calls to audit the Fed will be audits or some new effort to politically micromanage the monetary policy?

Chairman Powell (01:57:19):

I have no way of knowing. Really what it is the GAO is free to work on every area of the Fed except monetary policy and does so. We have GAO reports all over the place over many years, but they don't audit monetary policy. And the threat would be if that were to go away, you'd have investigations into decisions on monetary policy and that would be a different thing. I think it was designed by its designer to be a step on the way to eliminating the Fed.

Speaker 4 (01:57:53):

That is correct. The calls to end the Fed came from the same wing of the Republican Party, and I guess still exists. I think we're up to something like 20 Republican sponsors of the end of the Fed bill.

(01:58:06)
Let's see, I was surprised to see that the word tariff only occurred twice in your monetary policy report. Whereas if you look at financial trade journals, it's mentioned five times above the fold for those that read hard copies. So, this must be a very hard thing for you to deal with because as you're aware, Trump's tariffs and other trade policies put us in a manufacturing recession a year before COVID hit.

(01:58:33)
And so this is not a small thing if these resume, but you have to filter out the chaotic noise and the guidance that varies hour by hour or week by week. How do you actually filter that? You say correctly that, "Well, let's wait to see what the actual policies are."

(01:58:49)
But then that depends. If you listen, one day, these are the actual policies. At some point you have to feed these into your macro models of what happens. And how do you do that filtering when there's just so much random noise on the signal?

Chairman Powell (01:59:03):

Well, I think it's straightforward now in the sense that no one knows pretty much what the exact policies will be. That's still evolving, and so you can't really take action. You can do analysis of various hypothetical things, and we've been doing a lot of that. But ultimately, it matters what happens for how long are there substitutes and many, many, many questions that will have to be answered. And even then, the question will be how much of that will transfer to the consumer. As you know, that can fall on the exporter, the importer or the retailer or the consumer.

Speaker 4 (01:59:39):

In my case, manufacturers are on both ends of this.

Chairman Powell (01:59:44):

So we really just don't know.

Speaker 4 (01:59:45):

So, if that sort of analysis [inaudible 01:59:47]-

Chairman Hill (01:59:47):

The gentleman's time has expired.

Speaker 4 (01:59:48):

… Congress, it would be great. So thank you.

Chairman Hill (01:59:50):

The gentleman from South Carolina, Mr. Norman, is recognized for five minutes.

Mr. Norman (00:00):

Mr. Norman (02:00:01):

Thank you, Mr. Chairman. Thank you, Mr. Powell, I appreciate you coming and addressing our body. In 2011, Vice Chairman Yellen made a statement about the concern about the long-term debt situation and the imbalance that we have with our budget. In the fourth quarter when she made the statement, the federal debt held by the public was as a percentage of GDP, was 64.75%. Now, the same debt to GDP is identified by CBO, was 99% at the end of '24. Do you express the same concern that Ms. Yellen had about the severity of where we are with our continued long-term imbalance?

Chairman Powell (02:00:48):

I have done so on many occasions. And essentially, that the U.S., we're on an unsustainable path. And the debt level isn't unsustainable, but the path is sustainable and certainly it's pastime for Congress to work on that. But that's what I can say, I can't say more than that.

Mr. Norman (02:01:08):

What do you think the benchmark would be? We're in the middle of the budget situation now, trying to debate particularly with reconciliation. What would you say is the benchmark that would ease, what level of cuts in your opinion, would ease your concern over what we're doing? We're 37 trillion now, but when you add the agents, the mandatory spending we have on Social Security as example, it's going bankrupt in '35. Highway Trust fund, running an imbalance. What level do you think will give you, I guess, some assurance that we're going to get our house in order?

Chairman Powell (02:01:47):

So I don't have a specific number, it wouldn't be appropriate. But I will say this, in having looked at this, the successful plans to, programs to get back on the right track, they tend to make progress over a long period of time. In other words, you've got to get to a place where the economy's growing faster than the debt and then you need to stay on that path for 20 years. This is not the kind of thing where we can fix it overnight, we just need to be making progress.

(02:02:15)
And right now we're running very large deficits at a time of full employment, so we need to start moving. You're either making progress or you're not. Right now we're not. So the key thing is to just, is for it to become a big issue and then people work together. The things that need to be done are things that can only be done on a bipartisan basis only. The things that need to be dealt with cannot be dealt with by one political party. I'll leave you with that.

Mr. Norman (02:02:42):

It's going to be a tall order.

Chairman Powell (02:02:44):

It is.

Mr. Norman (02:02:45):

To get bipartisan-

Chairman Powell (02:02:45):

It only grows. It gets taller every year.

Mr. Norman (02:02:49):

Yeah. Yeah, it does. That's one of my issues we're having now. The level of growth, you think, with what President Trump is doing with giving Americans confidence with the DOGE commission, which is giving Americans hope that we would… We're seeing things that are being spent of the taxpayers dollars that we never imagined that we couldn't get to, now he's exposing that. What level of growth do you think, with the confidence growing under Trump, that we will be able to reach this year and the years after? Because the 20 years you're talking about, we've got to have a pretty solid, it can't be, it's got to be, would you say, one eight, 2% growth of GDP?

Chairman Powell (02:03:44):

You know, for a long time people thought that U.S. potential growth was a little bit below 2%. I think we've had a real, we've had five years of good productivity growth and we hope that'll continue. If that does continue, then it might be two or two and a quarter. If you're talking about long-term budget assumptions though, I'd be conservative and say 2%.

Mr. Norman (02:04:07):

You think that's doable?

Chairman Powell (02:04:09):

2%? Yes.

Mr. Norman (02:04:12):

On another note, the stress tests that banks run and that public has been given information on everything but how that stress test relates to them. Most people don't understand what it is, why is it not broadcast more, in your opinion?

Chairman Powell (02:04:34):

Why the stress test?

Mr. Norman (02:04:36):

Correct.

Chairman Powell (02:04:36):

So the theory from the beginning was not to disclose the whole models and the way that they work, because in a way that felt like giving the test in advance. This was a brand-new initiative that started coming out of the global financial crisis, very successful generally. But over time the argument for not giving away the models, giving the models out has, I think, weakened. And also, the law has moved. The Supreme Court has moved to reduced the level of deference given to agencies and increased our obligations to be transparent under the Administrative Procedure Act. And so it's time we start to disclose the models.

Chairman Hill (02:05:17):

Gentlemen, time has expired.

Mr. Norman (02:05:18):

Thank you so much.

Chairman Powell (02:05:19):

Thank you.

Chairman Hill (02:05:20):

Thank the gentlemen. Gentlemen yields back. The gentlewoman from Texas, Mr. Gonzalez, is recognized for five minutes.

Mr. Gonzalez (02:05:26):

Thank you, Mr. Chairman. And thank you Chairman Powell for joining us this morning. As you know, the United Kingdom, European Union, Mexico, Brazil, India, and Japan all allow non-bank payment service providers access to their instant payment services. This allows improved access to liquidity for users by ensuring they can send and receive payments instantly without waiting multiple days, taxes, or money. I believe this is especially important for those who have tighter cash flows and for those sending payments to loved ones abroad, both which happens quite frequently in South Texas and across the country. With that in mind, does the Federal Reserve plan to allow non-bank payment service providers access to FedNow payment rail?

Chairman Powell (02:06:13):

We don't plan that right now. What we really wanted to do is to have the consumer not care. The consumer can have an access, but our payment rails go through the banks, and so you have to go through a bank.

Mr. Gonzalez (02:06:24):

Yeah. So there's no plans on changing that?

Chairman Powell (02:06:26):

No.

Mr. Gonzalez (02:06:26):

Okay.

Chairman Powell (02:06:29):

Not that I'm aware of.

Mr. Gonzalez (02:06:31):

Okay. I'm getting on the consumer price index. What consumer price index reading would cause you to cut rates? Is it 2% exactly or is it a trend closer to 2%? How much more movement downward do you need to see in CPI for the Fed to start looking at rate cuts?

Chairman Powell (02:06:53):

So remember, we're looking at two things. We're looking at the labor market and inflation. And so, headline inflation last year was 2.6%, and we've said, assuming the labor market remains solid and strong, we want to see further progress. We didn't actually make much progress on core PCE inflation last year for reasons that I can explain. But nonetheless, the progress wasn't there. So we want to see a resumption of progress. I'm not going to put a really specific number on it. I mean the truth is the economy's strong, the labor market's solid, and we have the luxury of being able to wait and let our restrictive policy work to get inflation coming down again, and that's what we're doing.

Mr. Gonzalez (02:07:32):

Is there any concern at the Fed that deporting millions of undocumented workers that do a lot of crucial work in the agriculture industry, in construction, in the hospitality business, will create upwardly pressure on inflation in this country?

Chairman Powell (02:07:49):

So we don't have concerns about policies, we just look at the data. And labor supply has actually, the new labor supply from immigration has actually come down quite sharply over the second half of last year, and there's every reason to think that will continue. Demand has also come down so that the unemployment rate has actually been flat since July. We're going to look at supply and demand-

Mr. Gonzalez (02:08:11):

But wouldn't taking a million workers out of the economy have a direct impact on it?

Chairman Powell (02:08:18):

It could. We will just have to see how supply and demand match up. In any case, we're not here to comment on immigration, we're here to achieve maximum benefit.

Mr. Gonzalez (02:08:25):

Right. No, I totally get that. I'm just figuring if you take a million people out of the workforce, how do we make that up and how would that have an upwardly inflationary pressure on our economy? But moving on. Recently, the Cleveland Fed's new tenant rent index tumbled to a negative 2.4 year-over-year rate. Does that type of deflation in shelter make you more positive on future interest rate cuts?

Chairman Powell (02:08:53):

Yes. But the thing is, what we're really looking at is in the aggregate housing services inflation. I believe that's a measure of current rents, so market rents that are happening. And market rents have not been showing much inflation for a long time. Market rents don't make their way into rents until leases turn over, existing leases turn over, and that's been the slow part of the process. We have seen a lot of progress on that, but we're not there yet. We're not back to levels of housing services inflation, which is what I described. But we're getting there. We're making clear progress.

Mr. Gonzalez (02:09:31):

You recently said that employment prospects are solid and construction employment, which represents 6.1% of all private employment, is falling significantly. Does this concern you?

Chairman Powell (02:09:44):

So we look at the aggregate numbers. There are always industries that are growing and not growing. I think the last few job reports have been significant job creation. You saw the one here a week or so ago, which revised up the last two months in strong job creation. In fact, it looks like the job creation may actually have picked up a little bit around the end of the year, last couple months.

Mr. Gonzalez (02:10:03):

Thank you. And just very briefly, given what we had, had a business CapEx recession the last time the economy faced uncertainty with large tariffs, are you monitoring CapEx developments closer this time around?

Chairman Powell (02:10:17):

We're monitoring them carefully, yes.

Mr. Gonzalez (02:10:19):

Thank you. I yield back.

Chairman Hill (02:10:20):

Chairman yields back. Chair of our oversight investigation subcommittees, recognized for five minutes.

Mr. Meuser (02:10:27):

Thank you, Mr. Chairman, and thank you very much, Chairman Powell, good to see you. I did recently chair an oversight subcommittee, a hearing on de-banking. During our hearing we revealed evidence that the FDIC directly pressured banks to de-bank crypto. What do you think of that situation?

Chairman Powell (02:10:47):

I think we're all struck at the number of complaints and the breadth of them. And we want to understand, we want to take a fresh look at this area. We're not telling banks that they can't bank certain people from certain institutions, anything like that. Nonetheless, we're hearing these things and I take at least some of it is real. So we need to understand it and stop it from happening, because if you look at what the banks are saying, they're really saying that a lot of this is that the enforcement of any money laundering is so tough that at any sign, any flag at all that gets raised, they just cut people off. And they can't explain, so that may be part of it, but I think we need to do some work, get to the bottom of it and address this. I'm sure you-

Mr. Meuser (02:11:34):

Thanks, Chairman. There were hundreds of letters, by the way, that were pretty clear that banks should avoid doing business with crypto companies. No such pause letters as they're referred to or communications of this coming from the Fed?

Chairman Powell (02:11:46):

Not that I'm aware of, no. It's not been our policy. Our banks are doing business with crypto companies and they're doing crypto inside the banks, some of them are. We've been a little bit careful with it, but I really don't think we've been telling people they can't do it.

Mr. Meuser (02:11:58):

Right. I think a lot of people, including us, would appreciate you keeping doing a careful review of that. The banking industry itself is concerned that there's no vice chair of supervision to provide clarity on multiple issues from Basel III to REG II and de-banking. Do you expect to have an acting vice chair of supervision? When do you expect to have an acting vice chair?

Chairman Powell (02:12:24):

We need to have a confirmed vice chair if we're going to have a vice chair. There's no such thing as acting for us.

Mr. Meuser (02:12:29):

Okay.

Chairman Powell (02:12:30):

But I don't know, that's up to the administration. I'll tell you, the way we look at it is, we're going to do our jobs. And I think there are a number of things that can be done that'll be very constructive. And if there is a new vice chair for supervision, I will welcome that person and do everything I can to make them successful.

Mr. Meuser (02:12:46):

Okay, thank you. Yesterday you noted that Basel III endgame could be finalized fairly quickly. Given last year's extensive public comments, will you ensure the rule does not restrict access to capital and fully incorporates industry feedback? And as you stated, you felt that the capital reserves for banks was about right, so I'd imagine you're not looking for anything too drastic there?

Chairman Powell (02:13:10):

No, that's right. Yeah, that's correct.

Mr. Meuser (02:13:13):

Okay, great. So the CPI this morning came in a little hotter than expected at 3%, did this surprise you?

Chairman Powell (02:13:23):

The CPI reading was above almost every forecast, but I would just offer a note of caution on this. Two notes of caution. One is, we don't get excited about one or two good readings and we don't get excited about one or two bad readings. The second thing though is, we target PCE inflation because we think it's simply a better measure of inflation. And so you need to know the translation from CPI to PCE, and we get more data on that, tomorrow we'll get the producer price index. So I think it's always wise, and the people who follow us closely know this, that we'll know actually what the PCE readings are late tomorrow.

Mr. Meuser (02:14:02):

Okay. So in the past, as you well know, you called inflation transitory, then the Fed signaled three rate cuts for 2024, and the market's priced in six. Now that you're saying that there's no rush to cut rates, do you find this forward guidance stabilizing markets or fueling volatility?

Chairman Powell (02:14:24):

So this is the summary of economic projections, the DOT plot. And I mean, I think markets like it, it's kind of the only, it is the forward guidance that we give. We don't really mean it as forward guidance, but markets do take it. Sometimes they take it too seriously. I think most market participants understand that it's highly conditional and dependent on what actually happens in the economy.

Mr. Meuser (02:14:46):

And that's the feedback that you do receive? That they find it helpful?

Chairman Powell (02:14:48):

Yes. Yeah. When we talk about getting rid of it, market participants will tell you, "Please don't do that."

Mr. Meuser (02:14:56):

Okay. If DOGE found a trillion dollars in wasteful, unnecessary spending, the Department of Government Efficiency, of course, and wouldn't that have a positive effect on inflation? Allowing you to perhaps lower interest rates and of course reduce our deficit spending?

Chairman Powell (02:15:11):

So this is if a trillion dollars of spending were eliminated, you have to run that through a model. But I mean, ultimately, it would… Hard to say exactly how it would affect the economy.

Mr. Meuser (02:15:26):

Okay. You got a $6 billion budget at the Fed, would you welcome DOGE to have a look under the hood?

Chairman Powell (02:15:32):

We haven't heard from them and I've got nothing for you on that today.

Mr. Meuser (02:15:36):

Thank you, Chairman. I yield back, Chairman.

Chairman Hill (02:15:38):

Gentlemen, time has expired. The gentleman from Illinois, Mr. Casten, is recognized for five minutes.

Mr. Casten (02:15:43):

Thank you, Mr. Chair. Chair Powell, always a pleasure to see you again. I want to start, there's, and I don't expect you to comment on the policy here, but there's been a number of actions from the Trump administration of scrubbing or limiting data that the private sector has historically relied on to understand the direct and indirect impacts on the economy. Public health data, information about breaking things down by gender, by race, that we need to understand granular shifts in the economy. I realize that you don't rely exclusively on government data, but has there been anything that has happened since the Trump White House was sworn in that has limited the Fed's access to information you need to fulfill your dual mandate?

Chairman Powell (02:16:27):

Not that I'm aware of, no.

Mr. Casten (02:16:30):

If there was, will you commit to sharing it with Congress so that we can fulfill our oversight responsibilities?

Chairman Powell (02:16:34):

Sure.

Mr. Casten (02:16:35):

Okay. When you were here in July, I had asked you this question, I just want to confirm that you still feel the same way. Is it still your view of the Federal Reserve that climate change constitutes an emerging threat to U.S. financial stability?

Chairman Powell (02:16:51):

I guess I would say it this way. I wouldn't say that climate change is currently a threat to U.S. financial stability.

Mr. Casten (02:16:58):

An emerging threat.

Chairman Powell (02:16:59):

I would say that it may emerge over time as such.

Mr. Casten (02:17:04):

Okay. So $250 billion of losses in California, we've now got multiple states where the insurer of last resort is insolvent, reporting today that California is having to bail it out. I know we have a difference of opinion on NGFS, I don't want to go into that, but is the Fed monitoring what is happening to our financial system as those insurers pull out, as insurance rates goes up, and people's both access to property insurance and the cost of insurance are going up? Are you monitoring what's happening systemically in our economy as a result of that?

Chairman Powell (02:17:37):

Yes. The question though, if the question is it a threat to the financial stability of the United States, that's really the question. And of course, we're following that very, very carefully.

Mr. Casten (02:17:47):

Okay, so if you're monitoring it, where is the risk that was being backed by the insurance industry moving? Where in the economy does that risk now live?

Chairman Powell (02:17:56):

So insurance companies, as you know, can cancel policies and not issue them and they can leave states and they're doing a lot of that. So where do those risks fall? They fall on homeowners and other beneficiaries, and they fall on state governments and to some extent, the federal government. But they don't cause large financial institutions to fail.

Mr. Casten (02:18:15):

Are you seeing shifts in mortgages, mortgage servicers, their willingness to provide loans to homes as those insurance rates go up or disappear?

Chairman Powell (02:18:23):

Implicitly, if you can't get insurance then there won't be a mortgage.

Mr. Casten (02:18:27):

Okay.

Chairman Powell (02:18:28):

I can't point to episodes where that's happening, but that's certainly where this looks like it's headed.

Mr. Casten (02:18:33):

Okay. Because I mean, there has been reports going back several years now, that the more prone your property is to flood risk, to fire risk, the more likely you are as a bank to offload that onto Fannie and Freddie, right? We've seen that data happening. So that then raises the question of, and this is maybe just purely academic and wonky, if you own a set of cash flows and you want to sell them to me, and we both have full information, I'm only going to buy them from you in accretive value to the extent that I have a lower cost of money than you do just, right?

(02:19:04)
Sort of like Econ 101, right? So if we own Fannie and Freddie right now because they're in receivership and they are throwing off a string of cash flows to the treasury, setting aside the nuances of how the CBO scores all these sorts of things, isn't the sale of Fannie and Freddie on the assumption that the buyer and seller have perfect information, the same information on both sides of that transaction, if that's accretive to the American taxpayer, doesn't that implicitly assume that we have to sell to somebody with a lower cost of capital than we do? `

Chairman Powell (02:19:38):

I followed your logic there. Yeah.

Mr. Casten (02:19:41):

Okay. And that would only not be true to the extent I suppose, either that the buyer violates every rule I had in my M&A career of paying for upside, as they say, or that the buyer lacked information that the seller had, right?

Chairman Powell (02:19:59):

Fair.

Mr. Casten (02:20:00):

Okay. So what I'd like to understand from you is, does that create a conflict of interest for the United States government? Because if we have information about climate change being scrubbed from our data sets and we have a White House that would like to sell Fannie and Freddie, are we committed to efficient markets that depend on accurate transparent information or are we committed to making a quick buck, in which case we might want people not to be uninformed? Is the Fed committed to transparent markets, I guess, is the first question? And then the second one, do you feel that conflict?

Chairman Powell (02:20:39):

I think we're getting a little away from my, from our mandate at the Fed. I mean, the idea of privatization is to get this off the balance sheet of the Fed and get it into, get private capital backing it up. And-

Mr. Casten (02:20:53):

Sure. And there would be good reasons for that. But if that is coming at the expense of value to the American taxpayer, we need to be transparent about that.

Chairman Hill (02:20:59):

Gentlemen, time has expired.

Chairman Powell (02:21:00):

Right, but we have private sector banks. We could make all credit… All credit could be made cheaper if offered by the central government, right?

Mr. Casten (02:21:07):

I yield back.

Chairman Hill (02:21:08):

Gentlemen yields back. The gentleman from South Carolina, Mr. Timmons, is recognized for five minutes.

Mr. Timmons (02:21:13):

Thank you, Mr. Chairman. And thank you to Chair Powell for joining us today. Yesterday in an exchange with Senator Warren on stress testing, you said that the Fed is having to change their approach "because the ground has shifted very substantially in administrative law." And while yes, the ground has certainly shifted since last year, I'm slightly confused because after reading up on the banking industry's lawsuit against the Fed, I do not see a direct connection between their case and the loss of Chevron deference.

(02:21:41)
Their case seems to center on the Fed not complying with the long-established process laid out by the Administrative Procedures Act. And while some at the Fed may not classify stress tests as a rulemaking, when they require banks to alter their capital levels, they have the effect of rulemaking. So Chair Powell, I'm hoping you can clear this up for me. Is this a matter of adapting to a post-Chevron world or was this the Fed unlawfully using stress tests as a backdoor to increase capital requirements on banks without issuing a formal rulemaking and having to go through the legally required notice and comment APA process?

Chairman Powell (02:22:14):

Pretty good chance that the next sentence I say would be evidence in the court case that we're having, so I'm not going to get into just debating what the law is, because we're in litigation. I will say, it's not just Chevron though. I think it's clear from other cases that expectations under the Administrative Procedure Act are also raised, just generally speaking. And so we felt that overall that really has changed the playing field.

Mr. Timmons (02:22:42):

Any changes in capital requirements is very disruptive, and having a more predictable process is helpful for long-term stability of the U.S. economy. Onto the next question. Foreign banks, many of which are smaller than their domestic counterparts, play a larger role in providing financing in the treasury market. U.S. banks on the other hand, are less involved than they could be, primarily because regulators have made this activity less profitable for them. Stricter capital requirements, liquidity buffers, and compliance costs stemming from regulations like Dodd-Frank make it more costly for U.S. banks to engage in treasury market operations, particularly in repo and securities lending.

(02:23:18)
As a result, foreign banks facing fewer regulatory hurdles have stepped in to take on this crucial role providing the liquidity and financing needed. This shift has significantly altered the market landscape with foreign institutions now holding a larger share of financing operations that were once dominated by U.S. banks. So my question is this, why are we setting up a system where the U.S. treasury market needs to rely on, so much on foreign banks for proper functioning and do you see that as a national security threat?

Chairman Powell (02:23:48):

The trend that I see is that we have very significantly raised the capital costs of supporting market activity. And especially for low risk activities that are low risk, low return, what's happened is the amount of treasuries has grown much greater than, is now much greater than the capital that's allocated to intermediate it. So that's why you see low intermediation and relative lack of liquidity, and I think it's appropriate to do something about that. And that's something that we'll be looking at, is to reduce the enhanced supplemental leverage ratio to account for that. This is something that we proposed before, which I think is intended to increase liquidity in the capital markets for banks subject to it.

Mr. Timmons (02:24:34):

Thank you for that. I want to end on a positive note. I want to discuss the optimism among the American public. Small business optimism experienced its largest increase in 40 years following President Trump's recent election, with continued positive momentum in the month since. This surge reflects growing confidence in the economy spurred by expectations of favorable policies and reduced regulatory burdens for small businesses. The index is not only well above its 50-year average, but also reached its highest point in December since late 2018.

(02:25:02)
This shift has caught the attention of many across the economic landscape. Back home in South Carolina, I frequently speak with small business owners who are enthusiastic about the future and eager to help their businesses thrive under the new administration. So my question is this, how do you see this significant jump in optimism translating into tangible outcomes in terms of investment, hiring, and overall growth for small businesses?

Chairman Powell (02:25:23):

So we know that sentiment really matters. It's really hard to model it, but you do think about it when you're thinking about your forecast. You think about optimism and that kind of thing, because that's what supports investment. All the investments that companies make, they have to have on some level, optimism that it's worth shelling out this money to do what it is they're doing. So it's a key part of how the economies work.

Mr. Timmons (02:25:47):

And given the potential for increased investment, are there specific policy adjustments or economic factors that you're watching closely to ensure that this optimism leads to sustainable growth in the long term?

Chairman Powell (02:25:56):

Best thing we can do is achieve price stability and also full employment, maximum employment. And then create a stable environment where businesses and households can not worry about inflation and we have steady, sustainable growth.

Mr. Timmons (02:26:11):

And as one of the millions of Americans about to get a mortgage, interest rates going down would be helpful. Thank you, Mr. Chair. I yield back.

Chairman Hill (02:26:17):

Gentleman yields back. The gentlewoman from Massachusetts, Ms. Pressley is recognized for five minutes.

Ms. Pressley (02:26:26):

Chairman Powell, we're at an inflection point and we need leaders who are courageous enough to speak truth and who are committed to helping every person who calls this country home. There are many who wrongfully justify Trump's presidency and the lawless work of DOGE as good for the economy. Well, Chairman Powell, you actually know something about the economy. The Federal Reserve has a dual mandate maximizing employment and stabilizing prices, and it is clear to me that Donald Trump and Elon Musk's actions are impeding your work. The threats of tariffs against our allies are not helping the Fed do its job, nor will they help people across our country. The Boston Federal Reserve put out a report last week which estimated tariffs would be inflationary and raise prices. Chair, I ask unanimous consent to enter into the record the report titled "The Impact of Tariffs on Inflation."

Chairman Hill (02:27:16):

Without objection.

Ms. Pressley (02:27:20):

Additionally, Donald Trump has threatened mass deportations. He seeks to terrorize immigrant communities and separate families, claiming it will help the economy. I don't think so, and neither does the Peterson Institute for International Economics, who estimated that employment would drop 7%. Chair, I ask unanimous consent to enter into the record the report titled, "Mass Deportations Would Harm the U.S. Economy."

Chairman Hill (02:27:49):

Without objection.

Ms. Pressley (02:27:51):

Now, Chairman Powell, I want the Federal Reserve to be successful. So if Elon Musk and his DOGE bros were to walk into the Federal Reserve, intimidate staff, access classified data, and take control of the agency the same way they did USAID and the Consumer Financial Protection Bureau, would that help or hurt our economy?

Chairman Powell (02:28:15):

We don't have that happening. I'm not going to speculate.

Ms. Pressley (02:28:20):

Well, on your own website it says, "The Federal Reserve is accountable to the public and the U.S. Congress." So I'm, would like to see a clear answer on this. Your staff are watching, Wall Street is watching, Donald and Elon are certainly watching, and we all want to know, what is your view if DOGE does to the Federal Reserve what it has already done to other independent agencies?

Chairman Powell (02:28:51):

What we're going to do at the Fed is keep our heads down and keep working, wait to see what new policies emerge and try to make a thoughtful, sensible set of policies on our part once we understand the implications of those.

Ms. Pressley (02:29:08):

All right. If Elon Musk or anyone from DOGE attempts to access the Federal Reserve's private data, will you immediately alert the members of this committee?

Chairman Powell (02:29:22):

Sure.

Ms. Pressley (02:29:24):

Thank you. This is clear to me as night and day, Donald Trump and Elon Musk are not trying to help working class people, they're trying to help themselves. They want the Fed to be a tool that helps the rich get richer, banks get bigger, and regulations disappear altogether. But that is not your mandate. The Fed must maintain its independence and integrity, with the interest of the public before Elon Musk. The world's richest man does not care about the price of eggs.

Ms. Pressley (02:30:00):

He doesn't have to when he has already bought the presidency. I yield back.

Chairman Hill (02:30:07):

The gentlewoman yields back. The gentlewoman from California Ms. Kim recognized for five minutes.

Mrs. Kim (02:30:13):

Thank you, Chairman Hill. And Chairman Powell, thank you for joining us today and I want to commend you again for ignoring the outside noise and staying true to Fed's dual mandate. Chairman Powell, it seems the advent of artificial intelligence and other emerging technologies has helped the United States increase productivity when compared to other countries around the world. That makes our country more competitive and envy of economic growth. So do you believe that this boom in productivity is sustainable in the long term and if so, how does that increase in productivity affect your models to forecast inflation, therefore monetary policy?

Chairman Powell (02:31:02):

We have had a boom in productivity. It is most welcome and of course it would be great if it were sustained. I think if you look at the candidates that try to explain it, some of them are kind of one-time things and some of them could be more sustained. You mentioned technology and AI. To the extent that's part of it, that could be a sustainable increase in the rate of growth and productivity. To the extent it was more about job reallocation, people switching jobs coming out of the pandemic, that's kind of a one-time thing. Also, we had a wave of startups, a wave of early-stage companies, startups. That also tends to be linked to productivity. That too could just be a one-time increase in productivity. Literally no one has the record of being able to successfully forecast productivity for very long. But again, it's going to depend on many things and as long as we have this increased productivity, it's most welcome and important.

Mrs. Kim (02:31:59):

Thank you. Over the past decade we've seen Fed intervene with more regular frequency to maintain the orderly functioning of the U.S. Treasury market much more than decades before. It seemed like the private sector was able to manage this without too much Fed intervention pre-financial crisis and a long-standing and growing bipartisan consensus that the SLR and other regulations may be causing this. If so, what do you think the solution is to reduce the need for frequent Fed intervention?

Chairman Powell (02:32:39):

So I do think we need to work on Treasury market structure and part of that answer can be and I think will be reducing the calibration of the Supplemental Leverage Ratio, as you mentioned. That's something that I have long supported and for the reason that the quantity of Treasuries has grown really significantly and the capital allocated to intermediating trades in Treasuries has not, in fact has shrunk. So we need a liquid Treasury market and this is one of the things that we can and should do, is to reduce the calibration of that measure.

Mrs. Kim (02:33:17):

Thank you. I want to go back to March 2023 in response to the fallout of Silicon Valley Bank. It is my understanding that the Fed is analyzing ways to create a more efficient process for financial institutions to access the discount window. One issue that has come up is that it can take extended periods of time to assess and determine the lendable value of collateral potentially denying the institution's ability to access liquidity quickly. Is the Fed looking at ways to streamline the process to assess and determine the value of collateral at discount window?

Chairman Powell (02:33:57):

We are. We are looking at, so there are sort of impediments to the efficiency of the discount window and those are things we can work on and we're working hard on. There's also the question of stigma though, that banks are reluctant to use it because of the so-called stigma of using it and that is a very hard problem to solve. We're also working on that one.

Mrs. Kim (02:34:18):

Regarding the Fed's review of the discount window operations, can you give us an update on what problems the Fed was able to identify, what solutions you are pursuing, and what the estimated timeline is for any action?

Chairman Powell (02:34:31):

So the study is ongoing right now, the work's ongoing, but essentially you touched on some of this, it's inefficient, it's slow, and we need to have collateral processes that are very quick and very efficient because they need to be quick and efficient in a crisis. So that's part of it. Just general modernization, investing in technology, modernizing the discount window, that's part of it. The harder part is really turning it into something that banks are comfortable using because they feel it's not stigmatized and we're working on that too.

Mrs. Kim (02:35:08):

And the opening the discount window 24/7 could really help the banks in California, especially the state that I represent, the Southern California that I represent. Thank you.

Chairman Powell (02:35:19):

Thank you.

Chairman Hill (02:35:20):

The gentlewoman yields back. The gentleman from New York, Mr. Torres is recognized for five minutes.

Mr. Torres (02:35:26):

Thank you Mr. Chair. President Donald Trump has been asserting among the most aggressive and expansive claims, a presidential power that we've seen in our nation's history. He's taken the unitary executive theory to new extremes. He's claiming to have the authority to defund whatever agency he wishes, to abolish whatever agency he wishes, and to fire whomever he wishes even if it means violating an act of Congress. Mr. Chairman suppose for a moment the president were to ignore the congressional statute that establishes the independence of the Federal Reserve. What economic consequences would result from the Fed losing its independence?

Chairman Powell (02:36:06):

I think research over many, many years in many, many jurisdictions shows that some degree of independence is very important in keeping inflation under control and the connection is obvious. If politicians are going to want to be reelected and things like that, they're not going to be focused on the longer term. We have the mandate to remain separate from all of that, to stay out of all of that so that we can just focus on not on election cycles or helping or hurting any political party or politician, but just on serving the public as a whole. That is essential and it's uniform, I think across all advanced economies central banks.

Mr. Torres (02:36:45):

Much like the Bureau of Fiscal Service, the Federal Reserve has highly sensitive payment systems. President Trump and Secretary Bessent granted Elon Musk and his team of outsiders access to the central payment system of the federal government, a system that is often described as America's checkbook. Would you as the Federal Reserve chair ever grant a team of outsiders access to the Fed's central payment system without sufficient vetting and sufficient security clearance?

Chairman Powell (02:37:14):

No, but let's remember, we're the Treasury's fiscal agent. Everything we do is under their direction and there are Treasury payment systems and then there's our side of the wall, which is the actual payment to the recipients. And so we control access to that very, very carefully.

Mr. Torres (02:37:31):

Right. The Treasury issues the payments and then you process them.

Chairman Powell (02:37:34):

They order us to pay someone and we just pay. We don't question in payments, we just make the payments and we control access to those payment systems very carefully.

Mr. Torres (02:37:46):

And what would be the danger of lightly granting access to the Fed's payment system to outsiders without sufficient vetting? What could go wrong?

Chairman Powell (02:37:54):

Well, the reason why we're so careful about it is just for one thing, the possibility of mistakes and someone coming in and changing the code and things like that. So we have very careful access. Another one is just you open it up to more cyber risk and things like that. So I mean I think all really important computer programming is subject to very, very careful access restrictions and we're no exception.

Mr. Torres (02:38:23):

Right. So you believe as I do that granting an insufficiently vetted team of outsiders access to the payment systems of the Treasury or the Fed would radically raise the risk of a cyber breach at the hands of foreign adversaries like China and Russia?

Chairman Powell (02:38:36):

So I, we're talking hypothetically here. I can tell you that that is not something that's happened relative to, we can speak to the systems that the Treasury has asked us to operate on their behalf and that has not happened in those systems.

Mr. Torres (02:38:53):

Okay. I represent one of the poorest congressional districts in America. I have cash-strapped constituents who pay exorbitant fees simply to transfer their own money, often to loved ones abroad. Access to Fedwire could play a role in radically reducing the cost of remittances and payments for the lowest-income Americans. What is your position on expanding Fedwire access for the purpose of reducing the cost of remittances and payments?

Chairman Powell (02:39:23):

Fedwire is really between banks. These are very large wholesale transactions. It's one of the world's most important, if not the most important financial market utility. I don't think we're looking to open it up to retail customers. I think faster retail payments and particularly cross-border payments are a subject of a lot of work in the international sphere and I think we all understand it's important to lower the costs and the risks of those.

Mr. Torres (02:39:52):

The commercial real estate, do you feel that continues to be a ticking time bomb within the financial system? What's your sense of,-

Chairman Powell (02:40:01):

I wouldn't say that. So we've been saying, and I think it's still true, that this is a problem that's been with us and it's going to be with us for a while. If I can say something modestly constructive, it doesn't seem to be getting worse.

Mr. Torres (02:40:12):

Okay.

Chairman Powell (02:40:13):

So there are a lot of embedded losses, a lot and they're just going to need to be realized. So we're working with financial institutions to make sure they have a plan and understand their losses and can manage them.

Mr. Torres (02:40:24):

I see my time has expired. Thank you.

Chairman Hill (02:40:26):

Gentlemen yields back. The gentleman from Florida, Mr. Donalds is recognized for five minutes.

Mr. Donalds (02:40:30):

Thank you Mr. Chairman. Chair Powell, it's good seeing you again. I want to start with just a broad-based conversation. I know the Fed has been making adjustments to the Fed funds rate over the last several months and what we've noticed is there's not been a lot of, although there's been movement on short-term rates, there really has been a minimal impact on, in my view, intermediate to long-term rates. Can you expound on why you think this phenomena is starting to exist with respect to Fed rate monetary policy versus the general borrowing rates for businesses and consumers?

Chairman Powell (02:41:08):

Right. So you're right of course. We've lowered the federal funds rate and as sometimes happens longer rates have gone up. They've gone up and come down and gone back up. They moved around, but they're higher and the reason is that we don't control long-term rates. They react to a whole bunch of different things including a sense of more deficit spending coming, including expectations of more growth and risk of higher inflation. So markets aren't pricing in higher inflation, but maybe pricing, that the risk of that is there and that could be a reaction to new policies or not. But ultimately though, the increase in longer-term rates is really mostly not about Fed policy or our job of maintaining price stability. It's about other things, the term premium in particular. Be happy to meet with you and go through this in a lot of detail. More than you can do here.

Mr. Donalds (02:42:01):

No, I would love to do that. One of the concerns I have as well as a lot of my colleagues up here on the Hill is there is but so much that the Fed can do with respect to rate policy and I fully acknowledge that, wanted to get your views on that, but I think it's also the desire and this conversation happening right now obviously with DOGE and Elon Musk and the desires for efficiencies, but then also stability in federal spending and even bending the cost curve. Fiscal policy from Capitol Hill, do you think that would have yield positive results in medium and long-term rates, borrowing rates not just for the federal government, but for the American consumer?

Chairman Powell (02:42:45):

When you say fiscal policy, you mean fiscal policy that would reduce deficits over time?

Mr. Donalds (02:42:49):

Yes. Fiscal policy that will reduce deficits, fiscal restraint, I would say fiscal common sense over the intermediate and long-term for the United States.

Chairman Powell (02:42:58):

Yes. Well, so I think part of what market participants think about when they buy our Treasuries is how much more of this is coming? Are we going to get on a sustainable path? And they want to get paid. If the answer to that is, wow, we don't have a lot of confidence in that, then they're going to need, so the term premium, the so-called term premium goes up for that reason and there's no question if we were on a more sustainable path, I do think rates would be lower.

Mr. Donalds (02:43:24):

No, and I appreciate that testimony because one of the things that while we do talk about obviously tax policy in another committee, regulatory policy throughout the entire federal government, I think it's important for the American people to know that Washington does have to be fiscally responsible and if we are not, and I say all of Washington, if we are not, then the risk premium so to speak for borrowings in the marketplace are going to increase not because of the American consumer, not because of the strength of the American engine, but simply because the amount of Treasuries that we are putting out to market are just demanding a higher premium for every new dollar that we borrow because simply people want to be paid back. It's just something where Chairman, you don't have to comment on that. It's something I think is important for the American people to understand.

(02:44:13)
That is the major issue, if you will, over the next 20 years, 10 to 20 years for the federal government, that we have to get our fiscal house in order if we're going to give the American consumer who might be poor trying to make a way in this country, middle income trying to just take care of their children and figure out what the next stage in life is going to look like. People who are in the upper middle class who are now forming businesses, building some real wealth for themselves and for their family. All of that is at risk if the United States government does not take its fiscal health as serious as any other family and any other business would do. Real quick, Chairman, you said yesterday that as long as your chairman the U.S. will never have a central bank digital currency. Is the Federal Reserve or any of its member banks currently conducting any studies on CBDCs either for retail or wholesale purposes?

Chairman Powell (02:45:10):

I mean, we're not doing any work that is designed to lead to a retail CBDC. That's not happening. And we don't support one, we don't have legal authority to do one. So no. The notion of a wholesale CBDC is really not one that we think about or accept. We have, take Fedwire. Fedwire is a real-time digital process of trillions of dollars every day between banks. Is that a CBDC? Some people would say that's,-

Chairman Hill (02:45:41):

The gentleman's time has expired.

Chairman Powell (02:45:42):

So.

Mr. Donalds (02:45:42):

Thank you Chairman.

Chairman Powell (02:45:42):

Thank you.

Mr. Donalds (02:45:43):

I yield back. Thank you Chairman.

Chairman Hill (02:45:44):

Gentleman yields back. The gentlewoman from Texas, Ms. Garcia is recognized for five minutes.

Ms. Garcia (02:45:49):

Thank you Mr. Chairman. And Chairman Powell, thank you so much for being here today. It's always a pleasure visiting with you. I'm going to talk about a topic that both Congressman Gonzalez and Representative Pressley brought up, which is something that I think does impact our federal economy, but I know certainly does impact my district in Texas. I'm really concerned about President Trump's mass deportations efforts and their impact on your dual mandate. I believe the last time you were in front of this committee, I asked you about the impact immigration had on monetary policy given last year's Congressional budget office estimates. As a reminder, the report estimated that the labor force in 2033 will be larger by 5.2 million people, largely due to the immigration surge. Since then, there have been more reports and research about the impact that immigration has on our economy, both in maximizing employment and stability in our prices.

(02:46:57)
For example, immigrants are fulfilling lower paying and oftentimes dangerous jobs more frequently than US-born workers. They earn more money, pay taxes, invest back in our economy through everyday goods and services and help create even more jobs. A study done by the National Academies of Science, Engineering, and Medicine found that foreign-born workers, or as some people say immigrants pay 237,000 more in taxes over their lifetime than they receive in benefits. Let me say it again, $237, 000 more. So these massive deportations will have a massive impact on both our economy and workforce leading to a drop in production and spending. We're already seeing some of that in my district. Chairman Powell, I recognize that the Federal Reserve does not weigh in on policy. And so before you say that in your response, I already know that. However, immigrants impact our economy does impact both the unemployment and prices as Representative Gonzalez detailed in terms of some of the work that they do. Does the Federal Reserve account for immigrants in its interest rate decisions?

Chairman Powell (02:48:16):

Indirectly, yes. So we're looking at the labor market and part of what drives growth in the labor market is population growth and part of what drives population growth is immigration. So sure it can matter and sometimes it matters a lot.

Ms. Garcia (02:48:30):

Right. And do you look at the consumer price index in terms of the immigrants as consumers and if they're afraid to go out because they may get deported, they're buying less. That's what I'm hearing from businesses in my district.

Chairman Powell (02:48:49):

I think things like that would show up in the aggregate data, but we don't single out any particular group for that.

Ms. Garcia (02:48:57):

Okay. So can you quickly list some of your Federal Reserve responsibilities and do you have capacity to assume the role of being our consumer watchdog as the president now is focused on getting rid of the Consumer Financial Protection Bureau?

Chairman Powell (02:49:17):

So before Dodd-Frank, the OCC, the FDIC, and the Fed all conducted consumer exams and enforcement for the banks that they regulate and supervise. So for us, it's state member banks and for the FDIC state non-member banks, for the OCC national banks. Dodd-Frank took all banks over 10 billion in assets away just for purposes of consumer examinations and enforcement. Gave them to the CFPB. Statutorily, you could give that back to us or not, but I mean, it's certainly possible to restate the old order, but that would have to be something,-

Ms. Garcia (02:49:54):

No, I realize you've also said that your team will be there to get the job done. You've got your nose to the ground.

Chairman Powell (02:50:02):

We sent a bunch of people over to CFPB. We would need those people back. We don't have the people now who could take that over. They moved, many people from the Fed and the OCC and the FDIC moved.

Ms. Garcia (02:50:11):

So there would have to be a reallocation of resources.

Chairman Powell (02:50:14):

Yes.

Ms. Garcia (02:50:15):

Okay. All right. So sounds like you're obviously willing to do it and we may have to convince the president to make that reallocation of resources. So thank you for that. And Mr. Chairman, now I'd like to ask for unanimous consent to submit for the record three articles. One, the labor market impact on deportations and other, the Federal Reserve Bank of Dallas migration to Texas fills critical gaps in work force and the second one on unprecedented immigration search boosts job growth.

Chairman Hill (02:50:52):

Without objection.

Ms. Garcia (02:50:53):

And I yield back with two seconds.

Chairman Hill (02:50:55):

Gentlewoman yields back. Last member to question the chairman today will be the gentleman from New York, the Vice Chairman of the Subcommittee on Capital Markets, Mr. Garbarino. And you're now recognized for five minutes.

Mr. Garbarino (02:51:08):

Thank you, Mr. Chairman. Chairman Powell, it's good to see you again. After the last open market committee meeting, you said that the labor market conditions remain solid, unemployment has stabilized, and conditions in the labor market are balanced. This comes on heels of a jobs report this past Friday that indicated the economy added 140,000 jobs during the month of January. Yet when you peel back this data and look at recent employment data for the smallest of small businesses, the mom and pop shops, so firms not with 100 employees like those included in the jobs report. You see that small businesses are actually consistently losing jobs. In fact, the latest Intuit QuickBooks Small Business Index showed that employment for U.S. small businesses with one to nine employees decreased by 42,000 jobs compared to January. Last month in my home state of New York, small business employment decreased by 0.33% and revenue decreased by 0.62%, which is a decrease of $350 per small business. On average. Do you believe that we are seeing the same economic and business trends between companies with fewer than 10 employees and larger companies?

Chairman Powell (02:52:13):

I guess not, no. I mean, I think it's always the case, that there are differences between sectors and size companies and all that, and we're really left with looking at the aggregate numbers.

Mr. Garbarino (02:52:27):

Do you take into account the current macroeconomic trends of the smallest of the small businesses when setting policies?

Chairman Powell (02:52:33):

We do.

Mr. Garbarino (02:52:33):

You do? Yeah.

Chairman Powell (02:52:34):

I mean we, well, for one thing we read the same data you do. The reserve bank presidents come and talk about their districts at length and they talk about if you read the Beige Book, they're going to talk about small businesses, nonprofits, everything. So we look at everything, but at the end of the day, there's only one national unemployment rate, but there are many, many subtle changes in the data that we monitor too.

Mr. Garbarino (02:52:56):

And we all know small businesses drive the economy, and I know there's a company in my district, Brinkmann Hardware. 40 years ago they started with less than 10 employees. Now they have over 200. So they are,-

Chairman Powell (02:53:05):

It's great.

Mr. Garbarino (02:53:06):

Able to grow and they do great work. But I think just making sure monetary policies really does focus on helping small businesses grow is key to making sure the economy continues to grow. I'd like to move on to a topic that we've discussed on a few different occasions. Basel III Endgame. It is well known that I had some serious concerns with the initial proposal. One of those concerns that we haven't discussed is how the proposal would have impacted the securitization framework. At the time of the proposal, there was no narrative explanation, data, quantitative analysis, or financial modeling rationale for why the p-factor was doubled. While I understand that Mr. Barr promised we'd see an economic analysis to support the proposed change, I believe that was never released. So Chairman Powell, I'm wondering in your opinion, have you seen any market pressures or changes that would have necessitated such an increase in the p- factor?

Chairman Powell (02:54:00):

I can't point to anything. I will say that we're going to look at all of that again when we get together again with the other agencies and try to move this forward.

Mr. Garbarino (02:54:08):

Okay. Well, the proposed doubling of the p-factor would significantly increase the amount of capital required for securitization exposures, making securitization more expensive for banks to participate in and raising the cost of limiting the availability of credit for households and businesses. I appreciate that you will look at that, but given how this proposed change may negatively impact a bank's ability to act as market makers in the securitization markets, when looking at this, again, like you just said you would, can you commit to review this substantial increase given its outsize impact?

Chairman Powell (02:54:40):

Sure.

Mr. Garbarino (02:54:41):

I appreciate that Chairman. And I just want to expand on one other topic that my colleague, Representative Lucas brought up earlier. Over the past decade, we've seen the Fed intervene with more regular frequency to maintain orderly functioning of the U.S. Treasury market much more so than decades before. It seems like the private sector was able to manage this without too much Fed intervention, pre-financial crisis. Do you think regulation like Supplemental Leverage Ratio, which some of your colleagues have commented on is causing this? And if so, what do you think the solution is which will reduce the need for frequent Fed intervention?

Chairman Powell (02:55:17):

I think part of the answer is going to be to reduce the calibration of the Supplemental Leverage Ratio. There are a number of things that probably need to happen with Treasury market structure, but that's one of them.

Mr. Garbarino (02:55:27):

That's one of the solutions, but do you think there's other things and you'll all work on that?

Chairman Powell (02:55:31):

I do. Yeah.

Mr. Garbarino (02:55:32):

Okay. I appreciate that, Chairman. Thank you very much for being here today and I yield back.

Chairman Hill (02:55:38):

The gentleman yields back. I want to thank Chairman Powell for being with us today. Thank you for your testimony. Without all objections, all members will have five legislative days to submit additional written questions for the witness to the chair. The questions will be forwarded to the witness for his prompt response. Chairman Powell, please respond no later than March 31st, 2025. This hearing is adjourned.